May 1, 2015

Why Cash Flow Loan Trend is Gaining Popularity among Small Businesses

Traditional brick-and-mortar bank loans were used to be a very popular source; in fact, it is still a popular source for long terms loans and borrowers seeking bulk amount. However, a survey from Federal Reserve Bank of New York revealed that small businesses are turning towards online funders and lenders instead of approaching a tradition or regional banks. The trend has picked up pace during past couple of years, and small businesses are the biggest beneficiaries.

small business loan

Some downsides of cash flow loans to start with:-

It’s a misconception that small businesses look towards these online cash flow loan providers because they have higher chance of getting their application approved despite their low credit score. Surprisingly, survey has found that the approval rate for cash flow loans is 39 percent, which is higher than the traditional banks.

  • Cash flow loan is expensive deal as compared to traditional loan sources

The survey had also revealed that cash flow loans are generally pricier than credit from the banks or traditional sources. Lending from an online lender is likely equal the cost of the median credit-card loan as compared to traditional banks. The Federal Reserve Board of Governors had calculated the average rate of interest that modern online lenders charge. It came out to be almost twice than a traditional bank will charge you.

Still, why cash flow loan market is booming

Apart from two basic questions regarding the process of obtaining cash flow loan, which sounds to be very discouraging indeed, there are some advantages that are attracting more small businesses to benefit from this new type of credit system. We can attribute the popularity of online cash flow loan providers to the following features:

  • Suites best to the financial needs of small businesses

Unlike giant firms or owners of large industries, the needs of small scale businesses and start-ups are quite basic and temporary in nature. Mostly, small business requires small amounts to maintain their cash flow and liquidity in the market. Some others will seek short term loan for a limited expansion of business.

  • Cash flow loans can be obtain despite low credit history and low exiting capital

It’s a major reason that small businesses find comfort with these new types of lenders. A start-up with low investment and low asset can also obtain cash flow loans. The lender does not consider existing assets of borrower, but counts on future cash flow projections. In case of traditional banks, it’ll be really hard to obtain anything if a company does not have enough assets, a very good credit history or does not have a history at all.

  • Hours as compared to months

Moreover, small businesses need emergency back-up that should be quick to arrive. Even small setbacks can damage cash flow of a start-up and discourage it completely if re-enforcement didn’t arrive immediately. This is where these online lenders and cash flow loan providers enjoy advantage over traditional banks.

If you apply for loan with a traditional bank, then you need patience because the formalities and process may take from some weeks to months before you actually get your loan approved. Even after approval, you will have to wait before you get your hands on money. Small businesses, in need of quick re-enforcement, will definitely prefer a quicker source of loan. Cash flow loans are passed in hours, not in days or weeks. That’s a big advantage over traditional banks. Despite being pricier than a bank, cash flow loan providers are favored by small businesses because of this very bliss.

  • Easy application process

Second factor, that is also associated with the time factor, is the documentation and application process. Not only the documentation is complex in case of traditional lenders, but it ask for a lot of time to compile, review, and submit all required formalities. Then, the application is reviewed by the bank, which might take some days or weeks. However, cash flow loan providers have made it an easier to drop application for loan that is guaranteed to be reviewed by the lender within few hours or 24 hours at maximum. Again, it’s like bliss for borrowers as they have an easier, less complicated platform to meet their financial needs.

As an application receives a reply within few hours, the time taken in decision making process is also cut short.

The new type of lender community is likely to see growth in future owing to mentioned advantages. Traditional banks have their own clients, but for smaller companies or start-ups, cash flow loan is a savior, a boon.