A cash flow loan is a short-term loan with a relatively small credit amount. It is mainly used by companies to bridge short-term liquidity bottlenecks. Here we show you what else a cash flow loan can be used for, what lenders look for and how to apply for it.
Cash flow loan: Meaning
A cash flow loan is an unsecured loan granted by banks or other financial institutions to companies. It is used to increase working capital so that a company has short-term cash available to pay its bills, for example.

A cash flow loan is a short-term loan for companies, i.e. the term is usually shorter than 12 months. It is often used for the following purposes:
- Purchase of operating equipment and to stock up the inventory
- Hiring and training staff
- Bridging short-term liquidity bottlenecks, e.g. in the case of seasonal business
- Paying bills to maintain liquidity
- Renovate or modernise the business premises
- Expansion of the company
A common way in which a cash flow loan is granted nowadays is via crowdlending or special online lenders. The hurdles for a company to get a loan are often lower than with a bank loan. In crowdlending, for example, instead of one lender, there are several, which spreads the risk and often makes investors more risk-averse.

Typically, the loan amount for a cash flow loan ranges from £1,000 to £500,000, depending on the size of the business and its expenses. A cash flow loan is therefore much smaller than the investment loans needed for larger projects.
Cash flow loan: Interest rate & repayment
A cash flow loan works like a traditional bank loan. The lender assesses the default risk and determines the interest rate and the term of the cash flow loan based on this.
If a company takes out this loan, it pays the monthly repayments back to the lender over the fixed term. The interest rate is based both on the current base rate and on the risk with which the lender assesses the borrower. Interest rates can therefore range from 3% to 10%.
Cash flow loan: Example
An ice cream parlour has a booming business during the summer months, but sales drop sharply during the colder months. To avoid having to draw on reserves, the manager applies for a cash flow loan of £10,000, which is sufficient to cover operating costs during the autumn and winter months.
He agrees with the lender monthly instalments of £2,000 which he will pay back during the spring and summer months. The cash flow loan is easily granted because the lender can see on the ice cream parlour's income statement exactly what sales have been generated during the high season in recent years. Therefore, no collateral needs to be set aside.
Cash flow loan for (small) business
Any type of company can apply for a cash flow loan. Whether the lender grants the sum depends on the risk and the creditworthiness of the company. If a borrower decides to use crowdlending, enough investors must show interest in the project or company to invest.
Cash flow loan for business: Application process
Businesses have different options to apply for a cash flow loan. This can be with the bank where you also have your business accounts or with another lender, e.g. a crowdlending platform or another online lending company.
Every lender will expect an income statement from the last three business years in order to get an idea of the company's financial situation. It is important to document your financial situation as accurately as possible and also to show what income and expenses you expect in the coming months.
Depending on how the expected cash flow looks there, a loan can only be granted in a certain amount, because the income must be sufficiently high so that the loan instalments can be repaid without any problems.
Especially with online platforms, the processing time for the loan application is very short. Some providers make a financing offer within 24 hours, which can be a great advantage for companies in acute financial need.
Cash flow loan & bad credit: Possible?
The better a company's credit rating, the better its chances of obtaining a cash flow loan in the desired amount and at favourable conditions. However, it often happens that the credit rating is not excellent and a company already has cash flow problems that it would like to bridge with the cash flow loan.
In this case, lenders pay particular attention to the current situation: if it is foreseeable that the company will be able to repay the loan without any problems in a few months, the poor credit rating is not a reason not to grant the loan or to demand additional collateral.
It is possible that only a smaller sum than the desired amount will be provided and the interest rate will be somewhat higher than with a better credit rating. In any case, it is advisable for companies to compare offers from different lenders, because each one classifies the risks slightly differently and offers different conditions for a cash flow loan.