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cashflow finance also known as cash flow finance

Cashflow finance can boost your business growth. Essentially, this helpful tool is finance backed by your business’s projected cashflow, so there are many different ways you can use it.

If you’re a business owner, and you’ve been asking, “What is cash flow finance?”, here’s a quick overview to get to know cashflow finance better and how you can use it to your advantage.

What is cashflow?

Cashflow is the cash coming in and out of your business in a specified period. Cashflow can take two forms: positive cash flow is when there’s more money coming into your business than going out, and negative cashflow occurs when the opposite happens. So positive cash flow is what we want!

Measure your money position

Cashflow statements are your friend. Use these to measure and monitor what funds are coming into or out of your business. You can break your cashflow data down by week, fortnight, month or quarter in a cash flow report. 

Lenders love clarity

Every business needs finance at some point. When you do, presenting a clear picture of your cashflow will make life much easier for you and your lender. Cashflow finance lenders make lending decisions based on your projected cash flow. So, to really get a great business leg-up from this finance type, it pays to have a comprehensive cashflow picture – even if this is not picture-perfect.

Say your business has low cashflow at times. Lenders will also consider profit and loss statements to assess your cashflow finance eligibility. Low cash flow may be due to outstanding invoices, when your busy season falls or being at the start of a big project that will lead to high future income. Where your business is on track for a cashflow boost, lenders will consider this too.

Several faces of cashflow finance

Cashflow finance can come in many forms. Many do not require physical collateral, which opens even more financial doors for your business. Let’s take a closer look at some of the most common forms of cashflow finance:

Invoice finance

Does your business offer invoice payment terms? Usually, these are given as an option in B2B transactions. You may also know this practice as ‘invoice discounting’ or ‘accounts receivable finance’. If you do, you can leverage the value of your outstanding invoices to gain finance for your business. Lenders will lend you up to 80% of the total value of your outstanding invoices.

Say you have $100,000 owed to you in outstanding invoices. You can get an invoice finance loan for up to $80,000. Note that like other loans, invoice finance incurs interest, establishment fees and other charges. So be certain to know the terms of your invoice finance loan right upfront to protect your cashflow.

Merchant cash advance

Have a large volume of Eftpos and credit card transactions in your business?  Merchant cash advance finance may be for you. Retailers and hospitality businesses often do well with merchant cash advance finance. Here, your lender provides the funds, and your loan is repaid by a percentage of your card transactions revenue. Automation makes the process easy. With each Eftpos and credit card transaction, your business receives, the agreed portion goes directly to the lender. For example, a restaurant needing a new fit-out could get a merchant cash advance and repay the loan with a small percentage of each card payment going to the lender. 

Unsecured business loans

Traditional business loans use residential or commercial property as security. But what if you are a business owner who doesn’t own a home or simply doesn’t want to pledge your home as collateral? Luckily, an alternative finance solution has emerged.

Unsecured business loans are based on a lender’s assessment of your ability to repay the loan. You don’t have to pledge any of your important assets to get finance. All you need to do is commit to regular, reliable repayments and have your cashflow records to put your best foot forward. Better yet, you can get a decision for an unsecured business loan within an hour!

Unsecured business lines of credit

Besides unsecured business loans, an unsecured business line of credit is another form of cashflow finance that doesn’t require collateral. This quick, simple form of business finance gives you a predetermined credit limit that you can draw from when needed. You only pay for the amount you’re using, not the total amount.

Say you have a business line of credit for $100,000 but are only using $20,000 of this. You only pay interest on that $20,000, not the whole $100,000 facility. This gives you the flexibility to borrow what you need when you need it. 

Find out more about unsecured business loans and business lines of credit

Interested in cashflow finance solutions? Look to Lumi.

Lumi is on a mission: to help your business access the funds it needs while protecting your cash flow and assets. We make this happen by offering several forms of cash flow finance, including business loans and business lines of credit

Curious about how much you can borrow?

Check out our handy business loan calculator to learn more about interest rates and loan term options. 

Post Author: Michael Gladkoff

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