Glossary
Cash flow lending
Lending advanced against what a business earns rather than against an asset the lender can sell.
In plain English
Most business lending is secured on something: property, equipment, a vehicle. Cash flow lending is advanced against the earnings themselves, which is how goodwill-heavy business purchases get funded when there is no real property in the deal.
Because the lender's recovery depends on the business continuing to trade rather than on selling an asset, the tests are tighter. Expect a higher cover requirement, a shorter term, closer covenant monitoring and, almost always, personal guarantees.
Why a lender cares
A credit team pricing cash flow lending is pricing the durability of the earnings, not their size. Customer concentration, contract length, owner dependence and how long the trading history runs matter more here than in any secured facility, because there is nothing to fall back on if the earnings stop.
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