Cash-Flow Loan

Last Updated: Jun 6, 2019

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In cash-flow lending, a financial institution grants a loan that is backed by the recipient's personal or business cash flows. By definition, this means that a company borrowers money based on historical and expected free cash flows. Credit ratings are far more important in this form of lending, in addition to historical cash flows.

Cash-flow loans are better suited for companies that produce strong earnings or have minimal hard assets they can pledge as collateral.

The advantage to this method is that a company can obtain financing much faster, as an appraisal of collateral is not required. Interest rates for these loans are typically higher than Asset-Based loans due to the lack of physical collateral that can be obtained by the lender in the event of default.