The Pros and Cons of Cash Flow Loans
Both small and medium-sized businesses have the option of taking out cash flow loans to pay for various small business expenses. These loans work differently than most traditional loans. Below are some facts about how they work, as well as the pros and cons of taking them out.
Pro: Low Credit Applicants Can Get Accepted
One of the biggest benefits of taking out a cash flow loan is that even people who have low credit scores can still be accepted. Instead of relying on credit scores, these loans rely more on a cash/income history. This requires a fair amount of paperwork to prove. However, the long history of steady business income you have, the more likely you will be to be approved, regardless of a low credit score.
Con: Interest Rates Can Be High
Since credit scores do not matter much when it comes to getting approved, some banks will take advantage of this. They do this by putting high-interest rates on the monthly payments. While this may not seem like a terrible thing at first, the interest can add up and end up costing a lot more than the interest would on a traditional loan in the end. For this reason, it is generally not a great idea to take out one of these loans if you know that the interest rate will be much higher compared to a traditional loan that you also qualify for
Con: There Are Added Fees
Another way banks will try to get away with more is by adding extra fees. This is more common with people who have poor credit scores. For this reason, it is best to take out a traditional loan that comes with fewer fees.
Pro: They Can Be Used For Any Expense
The money obtained from these loans can be used for just about any business purpose. The loans are most often used as working capital while the business is in a sales lull. These loans are also used to make small business expansions, pay for advertisements, employee paychecks, or paying off tax debts.
Use these pros and cons to find out if one of these loans is right for your business needs. Generally, they are best for people who have low credit scores but who will be able to pay back the loan quickly. People who have a higher credit score and can be accepted for loans with lower interest rates should take out another type of loan.