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Term of the Day: CASH FLOW LOAN

19 Mar

 

Definition of ‘Cash Flow Loan’

Borrowing cash typically to meet day-to-day operations or acquisitions. It 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.

Reasons for needing a cash flow loan could be seasonal-demand changes, business expansion or changes in the business cycle.

Cash-flow loans can help in temporary situations, but if cash flow problems persist then companies need to improve their cash conversion cycle and get customers to pay faster.

 

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