Cash Flow Loans

What are Cash Flow Loans?

Cash flow loans are term loans where lending decisions and loan sizing are based primarily on a borrower's EBITDA rather than hard asset collateral. These loans are structured around the borrower's ability to generate consistent cash flows to service debt obligations and can occupy various positions in the capital structure.

Enquire now

Key characteristics:

EBITDA Multiple Sizing: Loan amounts are typically determined by applying a multiple (usually 2-6x) to the borrower's trailing twelve months EBITDA, allowing borrowing capacity to scale with business performance.
Leverage-Based Pricing: Interest rates are tied to debt-to-EBITDA ratios through pricing grids, with spreads adjusting based on total leverage and position in the capital structure.
Flexible Capital Structure Position: Can be structured as senior secured, second lien, or subordinated debt, with pricing and terms reflecting the risk profile of each position in the waterfall.
Covenant Structure: Feature incurrence-based or maintenance covenants depending on seniority, with senior positions typically having lighter covenant packages and junior positions requiring more borrower reporting and restrictions.
Floating or Fixed Rate Structure: May be priced at a benchmark rate plus a spread for senior positions, or carry fixed rates with higher yields for subordinated tranches, reflecting different risk-return profiles.
Private Market Financing: Commonly used in leveraged buyout transactions, growth capital situations, and refinancing scenarios across the capital structure to optimize the cost of capital and provide financing flexibility.

Cash flow loans are arranged by banks, direct lenders, and institutional investors for middle-market and large corporate borrowers with predictable earnings profiles, enabling growth capital, acquisitions, or refinancing solutions where traditional asset-based lending may be insufficient or where borrowers seek capital structure optimization across multiple debt layers.

SOME OF OUR LENDERS

Benefits of Cash Flow Loans

Cash flow loans offer several structural advantages that make them attractive financing solutions for qualifying borrowers:

Performance-Based Borrowing Capacity: Loan sizing scales with EBITDA performance, allowing businesses to access additional capital as earnings grow without requiring incremental collateral or guarantees.
Capital Structure Flexibility: Can be structured across various positions in the debt waterfall, from senior secured facilities offering competitive pricing to subordinated tranches providing higher leverage multiples.
Streamlined Execution Process: Faster underwriting and closing timelines compared to traditional bank facilities, as cash flow loans focus on earnings analysis rather than extensive asset appraisal processes.
Covenant-Light Structures: Senior cash flow loans typically feature incurrence-based covenants with minimal maintenance requirements, providing operational flexibility for borrowers throughout the loan term.
Institutional Capital Access: Direct access to institutional investor markets enables larger transaction sizes and more competitive pricing than traditional bank-only lending markets.
Strategic Lender Partnerships: Cash flow loan providers often deliver value-added services including industry expertise, operational insights, and strategic guidance beyond pure capital provision.

Cash Flow Loans case study

Telecommunications Refinancing: Improved Cash Flow, Accelerated Growth

FBX Capital secured a £1.2 million cash flow term loan for a telecommunications client, consolidating high-cost pandemic debt through strategic refinancing while providing growth capital for expansion. This comprehensive solution reduced monthly debt servicing costs, improved cash flow, and enabled the business to fund office relocation, customer acquisition, and infrastructure investment to capitalize on the post-COVID market recovery.

Process and timeframe

Document Collection & Deal Sheet

Identify your target acquisition based on strategic objectives & engage them to ascertain if there is a fit.

Indicative offers

If there is a fit, any funding gap will need to be identified & a strategy put in place to fund it.

Analysis & decision

Once funding is feasible, terms must be negotiated with the vendor. Upon agreeing to a letter of intent, a period of 6 weeks to 6 months follows to finalise the deal.

Due diligence & credit process

Ensuring thorough vetting and alignment of interests with these partners will greatly enhance the efficiency and effectiveness of the due diligence process.

Credit backed offer & legals

Alongside the due diligence, the funding facility deal will be set up & you will need this in place and ready to go for completion.

Completion

As the deal completes, the corks pop & the fun begins...

Need to know & FAQs

What is an example of a cash flow from a financing activity?

A cash flow loan drawdown represents a classic example of cash flow from financing activities. When a borrower draws down on their credit facility, this creates a positive cash inflow from financing activities on the cash flow statement. Other examples include proceeds from issuing bonds, term loans, or revolving credit facilities. The loan proceeds directly increase the company's cash position while creating a corresponding debt liability, representing external financing to fund operations, acquisitions, or capital expenditures.

What are three types of cash flows?

The three primary types of cash flows are operating cash flows, investing cash flows, and financing cash flows. Operating cash flows represent money generated or consumed by core business operations, including revenue collection, supplier payments, and working capital changes. Investing cash flows include capital expenditures, acquisitions, asset sales, and investment purchases or disposals. Financing cash flows encompass debt issuance, equity transactions, dividend payments, and loan repayments. Cash flow loans primarily impact financing activities when drawn down and operating activities when serviced through EBITDA generation.

How does cash flow lending work?

Cash flow lending works by evaluating a borrower's ability to service debt through earnings generation rather than asset collateral. Lenders analyze trailing twelve months EBITDA and apply lending multiples (typically 4-8x) to determine borrowing capacity. The underwriting process focuses on cash flow predictability, market position, and management quality. Loan pricing is structured through leverage-based grids where interest rates adjust based on debt-to-EBITDA ratios. Borrowers must maintain specific financial ratios and demonstrate consistent cash generation to remain in compliance throughout the loan term.

What is an example of a cash flow loan?

A typical cash flow loan example would be a £50 million term loan facility for a software company with £10 million annual EBITDA, structured at 5x leverage multiple. The loan might feature SOFR plus 400 basis points pricing with a 3.5x maximum leverage covenant. The facility could include a £10 million revolving credit component for working capital needs. Loan proceeds might fund a strategic acquisition, growth capital investment, or refinancing of existing debt. The borrower's consistent SaaS revenue model and predictable cash flows support the EBITDA-based lending structure without requiring significant tangible asset collateral.

Who uses cash flow loans?

Cash flow loans are best suited for borrowers with strong earnings generation who require financing solutions based on operational performance rather than tangible asset collateral. Private equity portfolio companies use these facilities for leveraged buyouts, add-on acquisitions, or growth initiatives where EBITDA multiple-based sizing provides optimal leverage capacity. Established growth companies with consistent cash flow generation seek expansion capital without equity dilution concerns. Asset-light business models including service-based companies, technology platforms, or professional services firms leverage these facilities when they have strong cash flows but limited tangible collateral. Refinancing candidates optimize existing capital structures, extend debt maturities, or reduce borrowing costs, while management buyout participants pursue ownership transitions where cash generation capacity and management expertise are primary credit drivers.