Business Cash Flow Loans Explained

Cash flow lending is a type of business finance that uses your future income, rather than assets or property, to decide how much you can borrow and whether you qualify. Business cash flow loans are usually unsecured, quick to arrange and repaid over a short period directly from the money coming into your business.

If you want to understand cash flow itself before looking at finance options, our guide to business cash flow is a good place to start.

How does a cash flow loan work?

Cash flow lending is a type of unsecured business loan, offered on the basis of forecasted cash flow, that businesses typically use to support daily operations. The main factor that sets cash flow lending apart from asset based lending or traditional bank loans is the criteria that lenders use to determine whether your business is eligible for a cash flow loan. There’s a lot to unpack in our cash flow lending definition, so let’s break it down.

In what way is cash flow lending unsecured?

We say that cash flow lending is unsecured because it doesn’t require your business to put up any assets as collateral. A lender will consider the ability of your business to generate consistent cash flow – rather than the assets it owns – as the basis for offering your business a cash flow loan.

What is the difference between a cash flow loan and a traditional business loan?

A traditional business loan is assessed against a wide range of factors, including your business credit score, trading history, assets and a formal business plan. A cash flow loan is assessed mainly on whether your business is bringing in enough revenue to support the repayments. This difference matters because it changes who gets approved and how fast. Newer businesses or those with a patchy credit history often stand a better chance with cash flow lending than with a bank loan, because the lender is more focused on what your business earns today than what it has done in the past.

What is the difference between cash flow lending and asset based lending?

It’s worth distinguishing cash flow lending from asset based lending, which uses something your business owns, such as property, assets or equipment as security. Cash flow lending does not require any of this, because the lender is backing your ability to keep generating income rather than the value of what you hold on your balance sheet. This is why cash flow lending is described as unsecured. You are not putting up collateral, although some lenders will still ask for a personal guarantee.

What are cash flow loans used for?

Cash flow loans are typically used for day to day expenses rather than large one off purchases. Think of it as borrowing from your forecasted future cash flow to pay for what your business needs right now, rather than waiting for that revenue to actually land.

Paying staff wages and supplier invoices during a quieter trading period.
Covering rent and utility bills when income is temporarily lower than usual.
Buying stock ahead of a busy season.
Bridging the gap between issuing an invoice and being paid.

How much can you borrow with a cash flow loan?

The amount, term and cost of a cash flow loan vary by lender and by how strong your business's cash flow looks. The table below gives a general guide to what businesses typically see across the market.

Type of cash flow finance	Typical loan amount	Typical repayment term	Typical cost
Cash flow loan	5,000 pounds to 500,000 pounds	3 to 18 months	Higher than a secured bank loan due to the lack of collateral
Merchant cash advance	2,500 pounds to 300,000 pounds	4 to 12 months	Repaid as a percentage of card sales, so cost varies with turnover
Revolving credit facility	5,000 pounds to 250,000 pounds	Ongoing, drawn down as needed	Interest charged only on the amount drawn
Invoice finance	Up to 90 percent of invoice value	Repaid when the invoice is settled	Fee based on invoice value and time to payment

These figures are for guidance only. Your actual loan amount, term and rate will depend on your business's trading history, sector and cash flow strength, which is why it is worth comparing more than one lender rather than accepting the first offer you receive.

What are the benefits of cash flow lending?

Cash flow lending offers a genuinely different way to fund your business, built around what makes many small businesses strong in the first place.

It smooths out seasonal dips by letting you borrow against expected revenue during your busiest months, keeping daily operations running strongly all year round.
Decisions tend to come through faster than with a traditional bank loan, thanks to simpler eligibility criteria, and some lenders can release funds within a few days of approval.
It opens up funding to smaller businesses and startups, even those without a long trading history or physical assets to offer as collateral.
It rewards strong trading performance, since your day to day revenue carries more weight in the decision than your business credit score, and repaying reliably can help build a stronger credit profile over time.

If you would like a second opinion on whether cash flow lending is the right fit, our funding specialists at Capitalise are happy to talk through your options.

What are the risks of cash flow lending?

As with any kind of borrowing, there are risks and limitations to weigh up alongside the benefits.

Repayment terms are usually short, generally within 12 to 18 months, and some lenders build in automatic payments as a condition of the loan.
Interest rates and fees tend to be higher than other forms of business finance, because the loan is unsecured and repaid over a shorter term.
A lower business credit score will not necessarily stop you being approved, but it may mean a lower limit than you applied for, or higher fees to borrow the amount you need.
Many lenders will ask you to sign a personal guarantee, meaning you take on personal responsibility for repaying the debt if your business cannot, and some may apply a general lien across the business instead.

Going into any application with a clear understanding of what affects a lender's decision, and getting advice from an accountant where needed, will help you avoid surprises later.

What are some examples of cash flow lending?

A cash flow loan is the simplest example of cash flow lending. However, there are other kinds of funding similarly designed to help take the pressure off your cash flow and keep day-to-day business operations on track. Here are a few common examples.

Working capital loan: short-term funding that can be accessed quickly to cover operational costs like wages, utility bills or rent.
Invoice finance: a way to access the cash owed to your business in outstanding invoices upfront, instead of waiting 30, 60, or 90 days to get paid.
Revolving credit facility: flexible credit you can dip into and pay back when you need a cash injection to bridge or speed up cash flow.
Merchant cash advance: an unsecured business loan that allows your business to raise finance against your future credit card sales.

At Capitalise, we work with over 130 lenders to help you find the right funding for your business. If you are looking to ease the pressure on your cash flow, bridge a short term gap, or speed up cash flow to seize a new opportunity, start a funding search today using our free eligibility check and funding calculator.

Am I eligible for a business cash flow loan?

Eligibility depends on the lender, but most will look for the following.

A minimum trading history, often at least 6 months, though this varies by lender.
Evidence of consistent revenue through bank statements or management accounts.
A registered UK business, whether a limited company, partnership or sole trader.
A basic check on your business credit score, even though this is not usually the deciding factor.

Ready to explore your cash flow finance options?

If cash flow lending sounds like the right fit for your business, you can search for funding with Capitalise today. With access to a marketplace of 130+ business lenders, you can compare your cash flow loan options side by side and apply with confidence.

What is cash flow lending? Business cash flow loans explained