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Cash flow lending for buyouts / acquisitions
Cash flow lending is a financing method often used in conjunction with buyouts or acquisitions. It allows your company to use the anticipated revenues of a company you are purchasing to secure funding. Customers Bank is pleased to provide financing for expansions, acquisitions, new locations, or transitions of company ownership and will work directly with you to help your business grow.
Overview of cash flow lending
Cash flow lending involves leveraging a company’s anticipated cash flows to secure funding to acquire another entity. This method is particularly beneficial when you are confident in the future performance of the entity you are acquiring and its capacity to generate consistent cash flow.
Advantages of cash flow lending
- Flexible financing: Cash flow lending offers flexibility, allowing you to negotiate terms based on projected revenues instead of tangible assets.
- Access to capital: It enables companies with strong cash flow potential but limited tangible assets to acquire funding that might not be feasible through traditional lending methods.
- Growth opportunities: Your business can leverage cash flow loans to pursue growth opportunities, expand your market presence, or consolidate market share through strategic buyouts or acquisitions.
- Potential tax benefits: Interest payments on cash flow loans may be tax-deductible, offering potential tax advantages to borrowers.
Disadvantages of cash flow lending
- Higher interest rates: Because a higher risk is associated with relying solely on projected cash flows, lenders may charge higher interest rates than asset-based loans.
- Market dependency: The success of cash flow lending heavily relies on accurate projections. If the anticipated cash flows don’t materialize as expected, it could strain your ability to repay the loan.
- Risk assessment: Since it relies on projected cash flows, lenders have a higher risk, especially if the projections aren’t realized following an acquisition.
How are cash flow loans calculated?
Cash flow loans are calculated based on the projected future cash flows of the borrower’s company. Lenders assess the company’s financial statements, operational history, management forecasts, and industry trends to determine your ability to generate consistent cash flow.
What factors affect the interest rates for cash flow loans?
Interest rates for cash flow loans are influenced by your creditworthiness, the risk attributed to the projected cash flows, prevailing market conditions, and the terms negotiated between you and the lender.
What happens if the projected cash flows don’t materialize?
Loan repayment may be challenging if the cash flows you anticipate fall short of projections. You may face financial strain, potentially impacting your ability to meet your repayment obligations. This could lead the lender to renegotiate or restructure the loan terms.
Cash flow lending for buyouts or acquisitions offers an alternative approach to traditional asset-based lending, providing the means to pursue more growth opportunities for your business. The knowledgeable lenders at Customers Bank will guide you through the terms and potential risks. Give us a call today.