Understanding Cash Flow

Cash flow is the amount of money spent and received by a business during a specific period of time or for a specific project or product.

Cash inflows (how money is coming in) are usually acquired through operations, investments, and financing. Cash outflows (how money is going out) usually result from investments or expenses.

What is a Cash Flow Business Loan?

A cash flow loan is typically an amount of money borrowed in order to operate business effectively on a day-to-day basis. They are generally short-term and used to support seasonal changes in the company, expansion, operations, financing an acquisition or merger, or aiding a slow business cycle.

A bank secures the cash flow loan based on the cash flow history of the borrowing company or through collateral. To ensure repayment the bank will provide a loan based on company variables such as the total debt, enterprise value (EV), interest coverage ratio, or the Earnings before Interest, Taxes, Depreciation, and Amortization (EBITDA) metric used to determine the profitability of a company.

Why Get a Business Loan To Increase The Flow of Cash?

It is important for a company to maintain its cash flow in order to pay for expenses, operations, investments, and employees in a timely manner. If there is a problem financing a merger or acquisition, or if there is a slow or changing business cycle a cash flow loan can temporarily aid the process and keep business running smoothly.

A cash flow loan can also help with the management of everyday cash related problems such as improving the company’s cash conversion cycle, meaning turning over inventories faster, getting customers to pay, or improving vendor payment terms.  A loan of this nature can be that little extra that makes big things happen. George and Company will help your business determine what financing solutions will work best for to fit its individual needs and goals. Contact one of our advisors today.