Small businesses often need extra cash to cover day-to-day and other short-term expenses. After all, cash flow is the lifeblood of a healthy business, and sometimes a business may want to consider taking out a loan during times when cash flows are inconsistent or if it’s dealing with late payments.
Though depending on a business’ credit history, certain types of loans may not be available. That’s where cash flow predictive data comes in to help small business owners to obtain working capital and lenders to determine creditworthiness.
What is Cash Flow Lending?
Cash flow lending is a type of loan that is used by businesses for daily expenses. Generally, small businesses use a cash flow loan to finance working capital such as payments for payroll, inventory, utilities, rent, and so on. In cash flow lending, the borrowed amount is paid back by a business’ incoming cash flows. This means that a business is borrowing from revenues that it’s expecting to receive in the future.
These loans aren’t traditional bank loans and they require a much more thorough analysis of the business's financial health. In this type of loan, lenders consider more than the credit history and annual revenue of a business when reviewing and approving a loan application.
What is Cash Flow Predictive Data?
A cash flow predictive data is a business’ future cash flow data that tells lenders how much money will be coming and going out of a business over a certain period of time. Cash flow helps small businesses do more with historical accounting data and even predict exactly what a business’ cash flow may look like in the future.
Cash flow forecasting helps small business owners to get a clear picture of what their cash situation will look like at any given time. Besides, cash flow predictive data is essential for lenders to understand how likely a business will successfully repay the loan amount.
How Cash Flow Predictive Data Helps Lenders To Determine A Business’ Creditworthiness?
In the past, it was difficult, from a technology standpoint at least, to manage and forecast cash flow. But there is a myriad of innovative tools that help small businesses forecast their business cash flow. Some tools go beyond simple projections and provide new progressive data points that can be used by both lenders and small business owners for the underwriting process.
A cash flow predictive data will show lenders that your business is worth investing in. You can see some of the most exciting emerging data points such as future cash position, upcoming business challenges, potential monthly inflow/outflow, financial trends, and more.
Since the cash flow forecast shows lenders how much money a business will actually have after a loan is funded, lenders can determine if the business has the ability to repay the borrowed amount plus interest. Cash flow predictive data can also help lenders to create customized loan products that best fit a business’ unique financial needs and budget.
So if you’re a bank or an alternative lender or some other non-banking financial institution that is struggling to determine your business customers’ creditworthiness, predictive cash flow data can help. Choosing a tool that prioritizes transaction accuracy is imperative if you’re going to use the information to streamline your loan application process, determine creditworthiness and make better lending decisions.
Cash flow predictive data is here. Many fintech companies have already created APIs for lenders that deliver the most robust cash flow predictive data for small business lending, so why not use this technology and see ahead of time what exactly a small business is capable of.