Cash Flow Loan

Written By
Paul Tracy
Updated July 11, 2021

What is a Cash Flow Loan?

A cash flow loan is a loan, usually to a company, intended to meet daily cash needs during times when cash flow is inconsistent. These loans are short-term in nature; borrowers usually must repay them in 30 to 180 days.

How Does a Cash Flow Loan Work?

Let's assume Company XYZ imports and wholesales jewelry to retailers. Company XYZ makes most of its annual sales between May and August, when retailers are purchasing their Christmas inventory. Company XYZ's business is highly seasonal, and as such its cash flows hit their lowest in April of each year. 

This year, Company XYZ receives an unusually large purchase order from a national retailer. It's great news, but Company XYZ does not have enough cash at this point to purchase the materials for this giant order. 

To make it work, Company XYZ might consider getting a cash flow loan to cover the cost of the materials purchase. It can then repay the loan with the proceeds from the sale, which it expects to receive in July.

Why Does a Cash Flow Loan Matter?

Cash flow loans are essentially bridge loans. They are extremely helpful for companies that have temporary cash flow constraints, but they are not long-term solutions. Fees, interest rates, and collateral requirements can be high as well.

Activate your free account to unlock our most valuable savings and money-making tips
  • 100% FREE
  • Exclusive money-making tips before we post them to the live site
  • Weekly insights and analysis from our financial experts
  • Free Report - 25 Ways to Save Hundreds on Your Monthly Expenses
  • Free Report - Eliminate Credit Card Debt with these 10 Simple Tricks
Ask an Expert
All of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Cash Flow Loan.
Be the first to ask a question

If you have a question about Cash Flow Loan, then please ask Paul.

Ask a question

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

If you have a question about Cash Flow Loan, then please ask Paul.

Ask a question Read more from Paul
Paul Tracy - profile
Ask an Expert about Cash Flow Loan

By submitting this form you agree with our Privacy Policy

Don't Know a Financial Term?
Search our library of 4,000+ terms