Cash flow loan
A cash flow loan is a type of debt financing, in which a bank lends funds, generally for working capital, using the expected cash flows that a borrowing company generates as collateral for the loan.[1] Cashflow loans are usually senior term loans or subordinated debt, being used for funding growth[2] or financing an acquisition.
To secure repayment, the bank imposes covenants on a borrower on such levels and ratios as enterprise value, EBITDA, total interest coverage ratio, total debt/EBITDA, and so on.[3] They will also take a charge over the assets of the business to provide the lender with the ability to take control of the cash flows in the event of default.
In contrast, an asset-based loan is lent against company's assets. A senior stretch loan is the combination of the two.
See also
[edit]References
[edit]- ^ "Cash Flow Loan: What it Means, How it Works". Investopedia. Retrieved 2025-07-28.
- ^ "SBA 7(a) loan program posts negative cash flow". www.bizjournals.com. Retrieved 2025-07-28.
- ^ "How payment leaders can use cash-flow insights to boost lending". American Banker. 2025-04-22. Retrieved 2025-07-28.
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