Cashflow lending

What is a cashflow loan?

A cashflow loan is a loan you take out to temporarily bolster your businesses cash on hand. It may allow your business to run more smoothly because, if day-to-day situations arise, your business has the cash on hand to deal with them.

Why might I need a cashflow loan?

A cashflow loan can help your business run smoothly, if help is needed to cope with a variety of short-term needs. Consider things like:

• Extra staff: Perhaps seasonal variations in trade mean that you need more staff at a certain time of year. Or it could be that you have taken on a bigger than usual job and you need to staff up to handle it. Having cashflow on hand could help you pay your staff before your bill is paid.
  
• Extra stock: Again, due to an unforeseen demand, or perhaps a foreseen demand, you suddenly need to fork out for additional stock. A cashflow loan could help ensure you have the money to stay in favour with your suppliers.
  
• Pay urgent bills: Perhaps your creditors haven’t been as good at paying as you are, you need some short-term cash flow to pay your bills.
  
• Take advantage of an opportunity: Perhaps the business opportunity of a lifetime comes along, and you can’t take advantage because you don’t have the cash, even though it would pay you back three-fold.
  
• Weather a storm: A cash flow loan could see you through a lean patch without having to lose any assets.

What are the different types of small business loans?

Much like any loan, small business loans for cashflow are available in two main categories:

Secured loans

A secured business loan is secured by collateral in the form of an asset. Security is typically put up against the loan and includes such things as property, business equipment, or vehicles. Benefits of secured loans:

• Lower interest rates: Lenders have more security and are taking a smaller risk, so they may charge less for it.
• Borrow larger amounts: This can give your business more flexibility, allowing you to potentially take advantage of a larger opportunity.
  
• Longer terms: It could help you manage ongoing repayments without hurting your ongoing cashflow.

Downsides of secured cashflow loans:

• Your asset is at risk: If you default on your repayments, you could lose your asset which could then further impair your ability to operate your business, or get access to secured credit in the future.
  
• Longer application process: You’ll need to provide valuations of your asset that you are putting up as security.

Unsecured cashflow loan

This is a common type of loan used for cashflow purposes.

Instead of being secured by an asset, unsecured business loans are often assessed based on your trading history and credit score as a business.

They can often be processed faster than a secured loan, which makes it a good choice if you need financing quickly.

But, they may attract slightly higher interest rates, and, because it’s unsecured, the lender may be willing to only lend you smaller amounts.

Other benefits of an unsecured business loan used for cashflow:

• Quick, simple application process: It’s based on your turnover and credit rating. There’s no need for valuations and the like.
  
• No security required: So you’re not risking assets when taking out the loan.
  
• Funded quickly: If all paperwork is in order, loans can sometimes be funded within a couple of days.
  
• Improves your business credit score: Which could make it easier for your business to access funds in the future.
  
• You can spend the funds on what you want: As the loan is not secured, the funds don’t typically come with limitations on how you allocate the money.

Some downsides of an unsecured business loan for cashflow.

• Slightly higher interest rates: Because the loan is unsecured, the lender is taking a bigger risk.
  
• Smaller loan amounts: For the same reason as above, lenders may be less willing to lend bigger amounts, giving you less flexibility in terms of what you can do with the money.
  
• Shorter loan terms: Which could result in larger ongoing repayments for the life of the loan.
  
• A personal guarantee could be required: This means you will be held personally responsible for the debt, should your business default.

Is my business eligible?

Loan eligibility criteria can differ between loan products and lenders. However, generally speaking, to be eligible for an unsecured business cashflow loan you will have to be an Australian business, trading for more than 3 months and prove your profitability and credit worthiness.

Some of the main reasons business loans are turned down are:

• Bad credit rating.
• Seasonal business.
• Poor revenue.
• Young business.
• An industry in decline.

How do I compare cashflow loans?

At iSelect we’ve partnered with Valiant to make it easier for iSelect customers to find a small business loan product that suits their business needs. Valiant compare a range of products and lenders across Australia, and can manage the process of finding and applying for your finance solution, as well as settling funds. Get started comparing online today!

Last updated: 10/05/2022