Cash flow loans, and a better way to fix cash flow if you own property

A cash flow loan is sized on your bank statements and repaid from your takings, usually by daily or weekly debit from the start. If you own property with equity, a loan secured against it is generally priced well below a cash flow loan, is sized on the property rather than your takings, and can come with no repayments for six months.

How a cash flow loan actually works

A cash flow lender looks at the money going through your business account — usually by reading your bank statements or connecting to your accounting software — and decides two things from it: how much you can borrow, and how much it can take back out each day or each week. Then it repays itself by direct debit from the same account, usually starting almost straight away.

That design is why cash flow loans are fast, and why they suit a business with steady, predictable takings. It is also the source of the two problems that bring most cash flow borrowers to us.

Problem one: the repayments come out of the cash flow you were trying to fix

If the reason you need money is that cash is tight, a loan that takes a slice of the account every day or every week makes the tight weeks tighter. The debit does not wait for the invoice to be paid, the season to turn or the job to finish. This is how businesses end up taking a second cash flow loan to cover the first, then a third — each one taking its own debit from the same account.

Problem two: you can only borrow what your account shows

Because the amount is worked out from your takings, a quiet quarter, a seasonal dip, a lumpy progress-payment cycle or one bad month shrinks it — however much the business is actually worth and however good the reason for borrowing. That is why so many people are approved for a fraction of what they asked for.

A loan secured against real estate is sized on the equity instead. From $20,000 to $5,000,000, up to 80% of a residential property's value or 70% of a commercial one, less what is already owing. A business that is seasonal, irregular or recovering from a rough patch can borrow what the property supports, not what last month looked like.

What we look at instead of your bank statements

• Equity in real estate — the company's, yours, or another owner's who agrees to offer it.
• A business purpose — wholly or predominantly for business, which means at least 51%.
• A realistic way out — a sale, a refinance, or money that is coming.

No turnover test, no minimum time trading, no credit score minimum. Defaults, judgments and ATO debts are usually okay with us, and a real person reads every file. If a cash flow lender has already said no, see what to do after a cash flow lender declines you.

It usually costs less, and it is just as fast

A loan secured on property is generally priced well below an unsecured cash flow loan, because the lender is relying on the property rather than on the takings and a personal guarantee. Compare the total you will repay in dollars, including what it costs to repay early. HomeSec can fund in as little as 24 hours from a clean, complete scenario, because we do not use valuers and the document list is three items long.

When a cash flow loan is the better choice

If there is no property in the ownership group, a cash flow loan may be the only option, and a reputable lender is a sensible one. The same goes for a small amount, for a business with steady takings, repaid quickly. Twelve Australian cash flow lenders are compared on what each one requires, and the wider question is on unsecured business loans: what to check before you sign.

Reviewed by Paul Stone, Joint Chief Executive