Finance: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. Cashflow loans are usually senior term loans or subordinated debt, being used for funding growth[1] 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.[2] 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
- Asset-based loan
- Senior stretch loan
- Seniority
References
- ↑ "SBA 7(a) loan program posts negative cash flow". https://www.bizjournals.com/bizjournals/news/2025/02/11/sba-7a-small-business-lending-financials.html.
- ↑ "How payment leaders can use cash-flow insights to boost lending" (in en). 2025-04-22. https://www.americanbanker.com/payments/news/how-payment-leaders-can-use-cash-flow-insights-to-boost-lending.
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