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What is cash flow financing?

Cash flow financing is one of the more common ways for a company to obtain a loan now, without the need to go through a lengthy process of qualification. This particular approach to obtaining a business loan requires use of the company's anticipated monthly cash flow, usually based on past history. The idea is that the lender can use this data to verify that the company does have a steady flow of revenue, a portion of which can be used to make regular payments on the loan balance, eventually settling the debt according to the terms and conditions in the loan agreement.

One of the benefits of cash flow financing is that the application process is normally much less complex than for other types of business loans. The applicant supplies financial data that the lender can use to verify the flow of cash into the business operation, and determine if it is sufficient to meet the minimum standards for approving the loan. Other factors are also considered, including the credit rating of the business and the type of overhead the company maintains as part of the operation. Should the lender determine that the cash flow is sufficient to allow the company to continue operating while still managing to pay the loan according to terms, then the application for the loan is highly likely to be approved.

Companies may choose cash flow financing for many different reasons, including both short-term and long-term needs. For example, a company may need a quick loan in order to manage payroll expenses during a slow season, with plans of settling the loan balance in the upcoming busy season when cash flow significantly increases.

 

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