Secured Term Loans
- Lower interest rates due to collateral.
- Suitable for large, long-term investments.
These loans are backed by commercial or personal property, serving as collateral. They’re ideal for businesses looking to raise substantial capital, often used for large purchases, acquisitions, or consolidating existing debts. The security of collateral typically allows for lower interest rates and longer repayment terms. However, the risk lies in the potential loss of the collateral if this type of cash flow loan isn’t repaid.
Unsecured Business Loans
- Quick access to funds.
- No collateral required.
These cash flow loans don’t require collateral, making them suitable for businesses that may not have significant assets to offer as security. The process for obtaining unsecured loans is usually faster, providing quick access to funds. They are particularly useful for addressing immediate cash flow needs or emergency expenses. However, due to the increased risk to the lender, these loans often come with higher interest rates compared to secured loans.
Overdrafts/Line of Credit
- Flexible access to funds as needed.
- Pay interest only on the amount used.
This option for cashflow finance provides a revolving credit facility that businesses can draw on as needed, up to an agreed limit. It’s akin to having a flexible loan that’s available when required. The interest is typically charged only on the amount used, not on the entire credit limit. This can be a practical solution for managing short-term cash flow fluctuations, but it usually requires collateral and can carry higher interest rates than traditional term loans.
Debtor/Invoice Finance
- Immediate cash flow from unpaid invoices.
- Helps with short-term liquidity without waiting for clients to pay.
Also known as invoice discounting or factoring, this cash flow financing option allows businesses to access funds tied up in unpaid invoices. The lender advances a percentage of the invoice’s value to the business, offering immediate cash flow relief. This is particularly useful for businesses with longer invoice payment terms. It’s a way to unlock cash quickly without waiting for clients to pay, but costs can be higher than other forms of financing, and it involves relinquishing some control over your invoices.
Equipment Finance
- Enables acquisition of essential equipment without hefty upfront costs.
- Equipment itself often serves as collateral.
This financing is specifically for purchasing or leasing equipment needed for business operations. It can take the form of a lease, hire purchase, or a chattel mortgage. Equipment finance helps businesses acquire necessary equipment without paying the full cost upfront, thus preserving cash flow. The equipment itself often serves as collateral, reducing the need for additional security.
Other Options
Aside from the choices listed above, those who need cash flow finance for their business can also use these alternative sources.
Credit Card Use
Business credit cards can be used for short-term cash flow management. They are suitable for smaller, day-to-day expenses and can offer benefits like reward points and cashback. However, they usually come with high interest rates if the balance is not paid in full.
Debt Refinancing
This involves consolidating existing debts into a new loan with potentially better terms, such as lower interest rates or more manageable repayment schedules. It can be an effective way to reduce monthly payments and free up cash flow.
