Small Business Cash Flow Loans

Top 5 Cash Flow Loans for Small Businesses

  • June 2, 2023
  • 13 min read
  • Read Icon499 reads
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A cash flow loan is a small business loan that Is based on your company’s cash flow. Unlike traditional asset-based business loans, a cash flow loan doesn’t require any business assets for collateral.

The approval process is typically also faster with a cash flow loan and it can be completed in a matter of hours, especially if you apply with an online lender.

The best five cash flow loans for small businesses are:

  1. Merchant cash advances
  2. Invoice financing
  3. Short-term loans
  4. Business lines of credit
  5. Equipment financing

When it comes to cash flow loans small business owners who are looking for a fast funding option without the need for collateral could benefit from them.

Let’s take a closer look at the top five cash flow loans for your business and why they are a good fit.

How Do Cash Flow Loans Work?

When lending to small businesses, all lenders take risks into account.

With business cash flow loans, the business’s projected future cash flow determines the risk for the lender.

Essentially, this means that the business is borrowing money based on its anticipated revenue. Generally, however, lenders also take credit scores and financial histories into account.

That said, based on how cash flow loans work, the process typically involves:

  • A quick application process
  • The ability to obtain the loan without collateral
  • An assessment even with a less-than-perfect credit history
  • A fast and convenient process

Cash Flow Loans vs. Asset-Based Business Loans

As mentioned, cash flow loans differ greatly from asset-based lending which requires collateral to secure the loan, such as property or equipment.

Cash flow lending also focuses more on money owned and cash flow projections for the business, whereas asset-based lending focuses on the real assets a business owns.

Cash flow lending allows for an applicant to borrow up to 100% of their asset value, whereas asset-based lending requires a collateral deposit and a percentage of the total loan amount.

In asset-based lending, the cash flow lender will evaluate the business from an operational perspective as opposed to a financial one. The focus is not on how much money is owed but rather on

Some other differences between cash flow loans and asset-based loans are:

  • Cost: Cash flow loans typically attract higher interest rates.
  • Funding time: Cash flow loans are typically funded faster than asset-based business loans.
  • Repayment: Cash flow loans offer faster repayment schedules and shorter terms than many asset-based lending options.

Top 5 Cash Flow Loans

There are different types of cash flow loan options available for small businesses. Each offers different terms, rates, and maximums – all of which you need to factor in when applying for a business cash flow loan.

Let’s look at the top five cash flow lending options for businesses.

1. Merchant Cash Advances

If your business makes a lot of sales using credit cards as a payment method, a merchant cash advance (MCA) may be a perfect fit.

With an MCA, a set amount of money is advanced upfront to a business by the merchant cash advance company. In return, the company repays the total advance, plus interest, with a percentage of their daily debit and credit card sales.

Note: Since payments on a merchant cash advance will be deducted daily, remember that it will reduce your daily cash flow.

Some lenders only work with specific merchant accounts, so you may need to switch your merchant account provider to ensure that the process goes faster and easier.

How to Qualify

Qualifying for an MCA is fairly simple – the merchant cash advance company will see if your business has been operating for at least a year, has annual revenue of at least $50,000, and has a business credit score of at least 500.

Remember that MCAs are among the most expensive business lending options so carefully consider other options before setting for an MCA.

2. Invoice Financing

Invoice financing is ideal for businesses that want to get fast access to funds without having to wait until clients pay their invoices.

A good example is if you’ve received a large order from a client, but realized that you need more inventory than what you have on hand.

Invoice financing can give you the cash flow you need right away, without having to wait for invoices that have long payment terms.

An invoice financing company will evaluate your invoices and your business’s creditworthiness. Once approved, they will then advance you a percentage of your outstanding invoices – usually around 85%.

When customers pay you, you repay the lender and they pay the remaining 15% over to you, minus their loan fees.

Invoice financing companies usually have a standard fee of around 2-3% and can also charge a ‘factor fee’ which is based on the duration your clients have to pay their online invoices.

Note: Some people don’t consider invoice financing a cash flow loan as it is technically secured by the customer invoice. But invoice financing doesn’t require outside collateral so many consider it a cash flow loan.

How to Qualify

To qualify for invoice financing your business doesn’t need to have very high credentials as it is essentially self-securing.

Generally, lenders want to see a minimum annual revenue of $100,000, one year in business, and a credit score of at least 600.

3. Short-term Loans

Similar to traditional small business loans from banks, short-term loans have a shorter repayment period. they typically come with repayment terms of three to 18 months with daily or weekly payments.

It allows businesses to have cash in hand very fast and in some cases short-term business loans are a better option than longer-term financing options.

If your business needs to invest heavily in stock or supplies for an upcoming season, for example, a short-term loan is ideal.

Short-term loans are also ideal if you want to fund an expansion, especially if you know that a cash injection can create a significant increase in sales in the near future.

A short-term business loan is an effective cash flow funding option in many cases and it has many advantages such as fast funding times, consistent repayment terms, and an easy application process.

How to Quality

Qualifying for short-term financing is quite straightforward. Short-term business loans lenders typically require you to be in business for at least a year, have a minimum of $50,000 in annual revenue, and a personal credit score of at least 500. New businesses may find it a bit more difficult to qualify.

4. Business Lines of Credit

Business lines of credit work quite similar to a term loan or a credit card.

Through this type of cash flow loan, the lender establishes a maximum line of credit from which you can draw at any time.

Once the funds are repaid in full, the original amount becomes available again. This is a type of ‘revolving’ fund that can be used for just about any business purpose.

One of the big benefits of a business line of credit is the flexibility it offers. You will have access to funds whenever you need them and repay some or all of the funds.

Tip: Unlike a traditional business loan, with a business line of credit you only pay interest on what you borrow.

Business lines of credit can be unsecured or secured; however, if you want to apply for a cash flow loan, opt for an unsecured line of credit.

In many cases, your line of credit for your business could be available as fast as the same day you apply.

How To Qualify

To quality for a business line of credit from a bank, your business typically needs to be profitable with an established history, and you need to have a personal credit score of at least 700.

An alternative online lender, on the other hand, may require a business to have at least one year of trading behind it, and a personal credit score of around 600-630.

5. Equipment Financing

Equipment financing is a loan that is used to purchase equipment for the business. The equipment serves as collateral for the loan.

This type of loan is especially useful for businesses that rely heavily on equipment to operate, such as manufacturing or construction businesses.

With equipment financing, the equipment itself serves as collateral for the loan. This means that if the borrower is unable to repay the loan, the lender can repossess the equipment to recoup their losses.

Equipment financing can be structured in several ways, including:

  • Traditional Term Loan: This is a loan that is repaid over a set period of time, typically three to five years. The interest rate and monthly payments are fixed, making it easier for the borrower to budget and plan for repayment.
  • Sale and Leaseback: In this arrangement, the borrower sells their equipment to the lender and then leases it back over a set period of time. This can provide the borrower with a lump sum of cash while allowing them to continue using the equipment.
  • Equipment Rental: Some lenders offer equipment rental agreements, which can be a good option for businesses that only need equipment for a short period of time.

Equipment financing can be a good option for small businesses that need expensive equipment but don’t have the cash on hand to make the purchase outright. However, it’s important to carefully consider the interest rates, fees, and repayment terms of any equipment financing offer before accepting it.

How to Qualify

To qualify for equipment financing, businesses typically need good credit and a history of making payments on time. Some lenders will require a down payment.

Some lenders may also consider the length of time the business has been in operation. A well-established business with a proven track record may be more likely to qualify for equipment financing.

Pros and Cons of Cash Flow Loans

As with any type of business funding, there are pros and cons of business cash flow loans:


  • Fast application process
  • No collateral is needed to qualify
  • Cash flow loans can help you benefit from inventory discounts
  • Cash flow loans can provide relief for temporary slow periods
  • Emergency financial relief to speed up cash flow problems


  • Typically comes with higher interest rates
  • If not paid in time it can lead to high interest debt
  • Shorter repayment periods and frequent payments

Before committing to any cash flow loan for your business you should know exactly how you plan on using the funds and how you will pay it back.

Especially for small businesses, there is no ‘one-size-fits-all approach and there may be room for more than one funding option.

With proper research and professional advice, you can easily narrow down your best choices and find the perfect funding source for your business.

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Lorien is the Country Manager for Financer US and has a strong background in finance and digital marketing. She is a fintech enthusiast and a lover of all things digital.

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