Can Cash Flow Financing Help YOUR Business?
For going concerns with some time in business, cash flow financing can be a good way to fund expansion, growth, or everyday needs. But what IS cash flow financing? And where do you get it?
Fundability™, Free Cash Flow, and Your Business
Fundability is the ability of a business to get funding. It covers all the points a lender or business credit provider will check when trying to figure out if you’ll pay back a loan or credit extended to you.
These include details you may not have thought about or might think aren’t so important. But they are!
And that includes a business’s financing activities, how much debt it is holding, and what its net income is.
The 3 Cs Capital Acquisition Formula
When you think like a lender, you come to understand that all they want is to be sure that you’ll pay them back. Lenders look at one of three things for loan approval: cash flow, collateral (such as a capital asset), and/or credit.
The more of these “Cs” you have, the more funding options are available. Let’s look at how corporate finance like cash flow financing can help your business.
Cash Flow Financing
Cash flow financing is a loan made by lenders to a company that is backed by a company’s expected cash flows. A company’s cash flow is the amount of cash that flows in and out of a business. This is within a specific period.
Cash flow financing or a cash flow loan uses generated cash flow as a way to pay back the loan. It’s one of the smarter financing activities you can do if you’ve got a going concern with predictable net income.
Cash Flow Financing: Terms and Qualifying
Much of the time, you must have a few years in business. You may need a certain minimum credit score.
You must prove historical positive cash flow, and present your accounts receivables and accounts payables, so the lender can determine how much to loan to your business. A lender will look at financing activities and proof, like a cash receipt or the like.
The lender will conduct a cash flow analysis to determine if you have negative cash flow. Cash flow lending providers will want to see net cash flow in the plus column. They will not want to see too much debt (like from capital expenditure) and prefer seeing a healthy number of cash equivalents.
Account Receivable Financing for Financing Cash Flow
You can use outstanding account receivables as your collateral for business financing. Receivables should be with the government or another business.
If you also have purchase orders, you can get financing to have those filled. You won’t need to use your operating cash flow to do so.
Get an accounts receivable credit line with rates of less than 1% with no consumer credit requirement.
This is a better deal than a merchant cash advance.
Account Receivable Financing: Terms and Qualifying
Use your outstanding account receivables for financing. Get as much as 90% of receivables advanced ongoing or more, in less than 24 hours.
The rest of the accounts receivable are released once the invoice is paid in full. Factor rates as low as 1.33%.
Terms are for Credit Suite account receivable financing. The only collateral necessary is your account receivables. We do not have to see net income information, evidence of financing activities, or details of company debt.
Loan amounts run from $10,000 to $10 million. Up to 95% of receivables can be advanced within a week.
Rates start at a prime rate of 2%. You must have a FICO score of 500 or better.
Receivables must come from another business or government agency, not an individual. Business must be open for at least one year to qualify. Medical receivables must have $1 million in annual sales or more.
For the deal submission, you must provide the application, a breakdown of existing receivables, and a sample invoice. But you will not have to provide a cash flow statement.
Purchase Order Financing
Purchase order financing is advanced to a business with a large purchase order or contract, but the business is unable to fulfill it.
A lender then loans the funds necessary to complete the order and charges a percentage for the service. Then the company can fulfill its order or contract.
The difference between purchase order and accounts receivable financing is purchase order financing involves a company lending you money to fulfill purchase orders.
But accounts receivable financing involves a company buying your outstanding invoices. Still, they are both, at the bottom, based on cash flow.
Purchase Order Financing: Terms and Qualifying
Terms are for Credit Suite purchase order financing. For approval, lenders will often review your outstanding purchase orders that need filling. They want to be sure the purchase orders are valid, and the suppliers you are dealing with are credible.
If so, then you can get approval, regardless of your personal credit history. Rates tend to range from 4%. In some instances, you can get 95% of your purchase order financed.
Business Revenue Lending
This investing activity is a way to raise capital from investors who get a percentage of the enterprise’s ongoing gross revenues via dividend payments, in exchange for money invested.
In a revenue-based financing investment, investors get a regular share of business income until a predetermined amount is paid, much like a debt. It’s a lot like common stock.
Often, this predetermined amount of cash payments is a multiple of the principal invested. It is often between 3 to 5 times the original amount invested for these investing activities.
Business Revenue Lending: Terms and Qualifying
Since repayment of the loan (debt) comes from revenues, the time it takes to repay these financing activities will fluctuate. The faster revenue grows, the quicker you’ll repay the loan, and vice versa.
The percentage of monthly revenues committed to repayment of this debt can be as high as 10%. Monthly debt payments will fluctuate with revenue highs and lows and will continue until you’ve paid back the loan in full.
Cash inflow and cash outflow will affect how long before you can pay a cash flow loan debt in full.
Credit Suite Business Revenue Financing Activities Details
All terms are for the Credit Suite business revenue lending program.
Necessary collateral is consistent revenue verifiable through bank statements. Loan amounts run from $5,000 to $500,000.
Terms are for 3 to 36 months. Pay a factor rate of 1.10 to 1.45%. You must have a 500 FICO score or higher, with no recent bankruptcies.
A business must earn annual revenue of $120,000 or more per year. You must be in business for a year or more. The business must do over 5 small transactions each month.
Financial services industries are prohibited, and damaged credit is acceptable. Or business must bring in at least $15,000 monthly revenue within 6 months’ time in business.
To get this deal, you must provide the application and 6 months of business bank statements. But you will not need to provide a cash flow statement.
Get a line of credit for working capital from Fundbox. Fundbox just wants to know about your cash flow when deciding whether to fund your business.
Fundbox will connect straight to your online accounting (financial reporting) software. That’s all you need to do. They aren’t looking for a financial statement, cash flow statement, income statement, or balance sheet.
This is unlike many a cash-flow lenders.
You can get a revolving line of credit for up to $150,000. Fundbox will auto-debit your weekly payment from your bank account.
You don’t need to show a particular personal credit score. And you don’t need to show a certain time in business.
Fundbox Financing Activities: Terms and Qualifying
Pay in equal installments over the course of a 12 or 24-week plan. Available credit replenishes as you pay. There is no penalty to repay early.
Your business must be American. You must have a 600 or better personal FICO score, and $100,000 or more in annual revenue.
Also, you must have a business checking account. Ideally, you must have 6 months in business or more.
They don’t need to see your company’s cash flow statement.
PayPal Working Capital Loan
You can get a loan from PayPal. But you must already have a PayPal business account. There is no personal guarantee.
Cash flow loan amounts and eligibility depend on your sales via PayPal. So applying won’t result in a credit check.
PayPal Working Capital Loan: Terms and Qualifying
The maximum loan amount depends on your PayPal account history. To be eligible, you must have a PayPal Premier or Business account for 90 days or more.
Also, you must process at least $20,000 in annual PayPal sales if you have a Premier account, or at least $15,000 in annual PayPal sales if you have a Business PayPal account. Pay off any existing PayPal Working Capital loan.
Since automatic repayments get deducted as a percentage of each PayPal sale, the amount you repay each day changes with your sales volume. The more you sell, the more repayment progress you’ll make that day.
On days without sales, you’ll make no payments, but you must repay something at least every 90 days.
Depending on the loan terms you choose, you must pay at least 5% or 10% of your total loan amount (loan + the fixed fee) every 90 days.
The 5% minimum applies to loans estimated to take 12 months or more for repayment. This has a basis in your business’ past PayPal sales and other factors.
The 10% option applies to loans estimated to be repaid within 12 months.
You can get loans through Square. Applying will not affect your personal credit. Loan eligibility comes from several factors related to your business, including its payment processing volume, account history, and payment frequency.
You can get $300 to $250,000. Borrowers get a customized offer with a basis in their card sales through Square. Then they choose their loan size. You will pay no interest, just an ongoing flat fee
Square Financing Activities: Terms and Qualifying
There are no ongoing interest charges. Instead, you will pay one fixed loan fee to borrow the loan. The fixed fee is the difference between the total owed amount and the initial loan amount.
The fixed fee will never change, regardless of how fast or slow the loan is repaid. It is automatically deducted until you pay back your loan in full.
If sales are up one day, you pay more; if you have a slow day, you pay less. At least 1/18 of the initial cash balance must be repaid every 60 days.
They don’t want collateral for a business loan of $75,000 or less.
For loans with amounts over $75,000, they take a security interest in at least one business asset (this could potentially be a cash equivalent). Then they will file a UCC statement with the Secretary of State where your business is organized.
There is no personal guarantee for this long-term debt.
Cash Flow Financing: Takeaways
There are several options for this business financing activity that depends on your cash flow to pay the debt. Some of these financing activities are available through Credit Suite. There are also online options, such as PayPal and Square. Contact us today for help with your best option for financing activities.