Cash Flow Finance

What is cash flow finance? Let’s find out so you can better understand business finance.

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Businesses need to operate in an atmosphere of certainty. Without being able to depend on money coming in, businesses are unable to confidently make plans or take on more work, so it’s vital that every business has a way to ensure stability from month to month. Cash flow finance is a way of establishing this security for businesses in advance, by helping to create a certainty from one month to the next; thanks to this, businesses can plan for the future without being subject to the unpredictability of the market.

Cash flow finance constitutes an important part of any business’s financial strategy, and works well in tandem with other financial products. Bridging loans are an ideal way to establish cash flow security without reverting to long, costly bank applications which can take far too much time to arrange. Instead, a bridging loan can usually be arranged in less than a week, enabling businesses to meet emergency costs and avoid the potential impact of an obstructed cash flow.

While bridging finance can provide an indispensable solution for a wide variety of issues, business owners must always carefully consider their options before committing to any financial product. A cash flow loan can resolve a business’s upcoming problems but will itself need repaying in the future, so before coming to a decision it’s vital that borrowers consult an experienced financial advisor.

Bridging Loans for Cash Flow

A bridging loan is in essence a way to cover the cost of an immediate purchase. These loans are short-term solutions, and while terms of up to 18 months can be obtained, most borrowers aim to repay their loans as quickly as possible in order to minimise costs. Bridging loans are not designed to provide a large parcel of capital for ongoing needs; instead, they’re a way to inject temporary capital into a business for a short period of time to help meet costs. This can be an exceptionally valuable avenue for businesses which find themselves needing to meet sudden costs at short notice, or who have seen a shortfall in their balance sheet.

Cash flow loans differ from working capital loans in that they’re designed to help maintain a business’s current cash flow rather than enhance it for an upcoming expense. For instance, a business which wants to invest in new equipment in order to take on more clients will need a working capital loan, since they’re looking to expand, whereas a business that needs to carry out emergency repairs to their property will need cash flow finance.

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Typical Cash Flow Finance Loans

Every bridging lender will have a diverse product range, and will offer a wide variety of options to their customers. Even so, there are some elements which almost every cash flow loan has in common, and understanding what these elements are can help business owners to determine what they need to look for in a bridging loan. Here is an example of a typical cash flow finance bridging loan, and how it can boost a business’s financial resilience.

A city taxi firm has expanded its fleet to a dozen vehicles using asset finance, and is generating enough profit to pay off their operating costs and the finance on their fleet. However, one of these vehicles is unfortunately involved in an accident, and while no-one is injured the vehicle requires extensive repairs before it can be used again. This has a twofold impact on the firm’s cash flow: they lose the income generated from this vehicle, and they must also meet the repair costs if they want to bring it back into the fleet. A cash flow loan can be an ideal solution in this situation because it allows them to maintain their equilibrium, absorbing this blow to their cash flow which could otherwise push them into the red. Since they’re still paying off the other 11 vehicles in the fleet a significant portion of their income is already spoken for, and by taking out a cash flow bridging loan the firm can keep up repayments whilst their damaged car is repaired.

The importance of bridging loans in Cash Flow finance

No business owner can plan for the future with 100% certainty; no matter how well you know your market or how diligently you plan there’s always an element of uncertainty in whatever you do. You never know if your main customer is going to go bankrupt, if the bank is going to call in a loan or if your premises will suffer a fire, and any of these can easily put a thriving business into the red. Having access to a fast, flexible option such as bridging finance can let you bounce back quickly and get back to “business as normal” as soon as possible.

Frequently Asked Questions

What is a bridging loan?

A bridging loan is a short-term loan secured against property. It allows you or your business to “bridge a gap” until either longer-term finance can be arranged, or the underlying security or other assets can be sold.

What can a business bridging loan be used for?

A business bridging loan can be used for a huge variety of different purposes. Most commonly they are used for major purchases such as property, for new equipment and machinery as well as to acquire stock. They can also be used as working capital and by new businesses that require a cash flow injection.

What can be used as security against business bridging loans?

 A vast majority of businesses will use property or land as security when taking out a bridging loan. There are however a small number of specialist lenders that are prepared to secure bridging loans against equipment, the value of unpaid invoices and projected future sales or even against equity in the business.

What types of companies can use business bridging loans?

Business bridging loans can be an ideal solution for small, medium or large companies including sole traders, LLP partnerships and limited companies. Some specialist lenders will also lend to offshore limited companies, SPV’s and Trusts.

Talk to our business finance experts.
Call us on 0207 043 5271

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