Cash Flow Loans & Factoring Services | Business Factors
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Cash Flow Loans

Cash flow loans and facilities are a broad category of loans and other financial products that can be used to help boost a company’s cash flow. Ways to obtain cash flow, aside from loans, include revolving lines of credit, factoring and merchant cash advances.
  • Loans typically feature covenants mandating performance or restricting the company from certain activities
  • Most lenders ask for some sort of collateral or file a blanket lien on a company’s assets
  • Borrowers should ensure that the liens/collateral adequately reflects the size and conditions of a facility

Introduction to cash flow loans

Cash flow “loans” (facilities) are a broad category of loans that are used to boost a company’s cash flow to help pay for everyday expenses, such as payroll, inventory purchases or new project financing. They include everything from purchase order financing to installment loans to asset-based lending.

Most loans are secured as lenders are usually unwilling to take repayment risk without collateral. Collateral can include anything from the company’s current assets, such as inventory and equipment to real estate and other hard assets. Even an installment loan is likely to come with a blanket Uniform Commercial Code (UCC) filing – formally known as a UCC-1 financing statement – in the U.S. or its Canadian equivalent, a filing under the Personal Property Security Act (PPSA). These establish that a lender has an interest in the business or personal assets of the debtor.

It is important for a business to make sure that the collateral that guarantees the loan is proportionate to its amount. It would be unreasonable, for example, for a lender to file a blanket lien on the assets worth $10 million while providing a $100,000 credit line to a business. Liens like these could result in these assets not being available to other creditors if more funding is needed and the assets could be lost in the event of default.

As mentioned in our Working Capital Loans article, loans can be long- or short-term and can be priced using APR, interest or factor rate. To learn more about loan basics, please visit our Working Capital Loan page.

Alternatives to cash flow loans include revolving lines of credit and cash flow factoring, which is the sale of accounts receivable to a third party, such as a factoring company or a bank. A business can also finance its cash flow needs using a merchant cash advance. For a more detailed description of these products, continue reading this page. To find the best solution for your business, please contact Business Factors & Finance. We are available 24/7, 365 days a year.

Revolving lines of credit

A revolving line of credit (LOC) – also known as a revolver – is different from a loan in that a business can draw on it multiple times. It is usually secured by assets, such as inventory or accounts receivable. It can be a subject to a borrowing base, which is the maximum amount a business can borrow based on the value of its assets. For more on the borrowing base and its calculation, please refer to our Accounts Receivable page. The terms and requirements, such as interest, for a line of credit vary by lender.

A line of credit can be committed and uncommitted. With the former, the lenders make the entire line – say $100,000 – available to the borrower at once, subject to certain conditions. In the case of the latter, the lender does not have an obligation to extend credit. The lending under the uncommitted line is usually done on a short-term basis, such as when the business needs to meet an urgent expense, such as payroll, and does not have enough cash flow to do so. Such facilities might be more expensive, especially if they don’t require collateral.

It is important for a business to make sure that the collateral that guarantees the loan is proportionate to its amount. A lender should not file a blanket lien on the assets worth $100,000 while providing a $10,000 credit line.”

A line of credit, just like a loan, can come with the so-called covenants that are provisions in the agreement that restrict a business’s ability to do something or mandate to maintain a certain level of performance.

The advantage of a line of credit is that the interest is paid only on the portion that is borrowed. However, a lender may charge a fee on the unused portion of the line.

Let’s take a look at an example of a committed line of credit. Please note that the actual fees charged by a lender and the terms of a line would vary depending on the industry the business is in, their credit profile, length of time in business and many other factors. To see if a revolving line of credit is a good alternative for your business, please contact Business Factors.

  • LOC: $100,000
  • Interest rate: 12.5%
  • Term: three years
  • Interest accrued and payable monthly
  • Unused line fee: 0.1%, payable monthly

In this example, the business would only pay interest on the amount that it borrows. Let’s assume that the business drew down $50,000 to cover an inventory purchase right after the line was issued. The next month, it would need to pay roughly $521 of interest for the usage of the line (($50,000*12.5%)/12 months) and the lender would charge $50 for the unused $50,000 of the line. If the business owner repays the amount outstanding next month, it would only have to pay the unused line fee of $100 to compensate the lender for not extending the $100,000 to another business (and hence foregoing potential earnings). If all of the line is drawn, the business would pay around $1,042 per month for however long the line is fully drawn. The interest payment would go down as the business pays down the outstanding balance.

Merchant cash advance (MCA)

A merchant cash advance (MCA) is an advance against future debit and credit card sales that is repaid using a percentage of these sales. The repayment mechanism allows a business to better manage its cash flow since the amount taken out will fluctuate with the sales.

MCAs might be more expensive than loans because they are not subject to the same regulations as the latter. One of the ways an MCA can be priced is using a factor rate, which is a multiplier that indicates how much must be paid back. For more on the factor rate, please visit our Working Capital Loans page.

MCAs are usually fast to obtain. In making an advance, MCA providers take into account credit card receipts to evaluate a business’s capacity for repayment and can ask for a collateral that including business or personal assets. Additionally, some place restrictions on the use of advance’s proceeds. American Express, for example, specifies that the funds cannot be used to fund dividends, satisfy debts owed to American Express affiliates or cover personal or household expenses.

Requirements to get an MCA vary by provider but generally, the following might be required:

  • A minimum revenue amount (could be as low as $50,000)
  • A minimum of credit and debit receivables
  • A minimum time in business (12 to 24 months)

Some MCA agreements include predatory clauses, such as the so-called “confession of judgment.” By signing the confession, the business gives up the right to defend itself if the lender takes it to court. This could give the MCA provider the ability to seize the assets without due process. Businesses should avoid signing such agreements.

Businesses should not sign ‘confessions of judgment’ sometimes included in the MCA agreements. These clauses allow MCA providers to seize a business’s assets without due process.”

Selling invoices to obtain cash flow

Factoring is not lending. Rather, it is the sale of accounts receivable at a discount to a third-party company, known as a factoring company (factor) or a bank. Using factoring, invoices can be monetized in 2 to 3 days.

Fees are not uniform across the factoring industry and depend on the type of arrangement, the credit profile of a company’s customers, dollar amount and the number of invoices that are being factored.”

Cash flow factoring can be a good alternative to a loan for businesses that don’t have collateral or a long credit history. It relies primarily on the credit profile of business’s customers so as long as they are creditworthy, the invoices can be monetized. Factors, however, cannot act as collection agencies for past due invoices.

The factoring company assumes the responsibility of collecting payments on the invoices it factors – either on a permanent or temporary basis – and keeps a small percentage of the total invoice amount as their fee. A factoring company can buy just a few invoices, known as spot factoring, or all of them, known as whole ledger or full-turn factoring. To learn about the cost of factoring, please visit our Small Business Factoring page.

Factoring works in four simple steps:

  • The business provides a factor with a copy of the invoice that was sent to the client
  • The factor verifies the invoice and runs a credit check on the client
  • The factor advances a portion of the outstanding amount
  • Once the invoice is paid, the business gets the remainder minus the discount rate and any additional fees

Here is an example of a factoring arrangement:

  • Invoice amount: $10,000
  • Advance rate: 96%, or $9,600
  • Reserve: $400
  • Fees: 2.19%, or $219 every 30 days
  • Type of arrangement: Non-recourse

In the example above, a business uses factoring to help it pay salaries to its employees. The cost of factoring would be $219 per month until the invoice is collected. If the invoice is collected after 30 days, the business would receive $181 as the remainder of the reserve. The arrangement is non-recourse, meaning that there is no chargeback to the business if the invoice is collected.

Fees are not uniform across the factoring industry. They depend on the type of arrangement, the credit profile of a company’s customers, dollar amount, terms and the number of invoices that are being factored, etc.

The eligibility criteria for factoring include the following:

  • Be in business for at least 6 months
  • Have at least $100,000 in EBITDA
  • Have invoices that come from creditworthy clients and are not pledged as collateral for another facility


Cash flow loans are a broad category of loans and other financial products that can be used to help boost a company’s cash flow. Ways to obtain cash flow, aside from loans, include revolving lines of credit, factoring and merchant cash advance. Revolving lines of credit, or revolvers, differ from loans in that they can be reused once the amounts outstanding are paid down. Revolvers can come committed – when all of the revolver is available to use whenever a business wants – and uncommitted where the lender needs to approve of a draw. The amounts available under a revolver can be further limited by a borrowing base, which is the maximum amount a business can borrow based on the value of its assets. Cash flow factoring, or the sale of pending accounts receivable or invoices to a factoring company, is another way to quickly obtain cash flow. Merchant cash advance is a loan extended against a business’s future revenue. Contact Business Factors today to find the best alternative for your business.

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