Cash flow loan 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.

To secure repayment, the bank covenants a borrower on such levels and ratios as enterprise value

Enterprise value

Enterprise value , Total enterprise value , or Firm value is an economic measure reflecting the market value of a whole business. It is a sum of claims of all the security-holders: debtholders, preferred shareholders, minority shareholders, common equity holders, and others...

, EBITDA

EBITDA

EBITDA is an acronym for earnings before interest, taxes, depreciation, and amortization. It is a non-GAAP metric that is measured exactly as stated. All interest, tax, depreciation and amortization entries in the income statement are reversed out from the bottom-line net income...

, total interest coverage ratio, total debt/EBITDA, and so on. They will also take a charge over the assets of the business to provide the lender with the ability to take control of the cash flows in the event of default.

In contrast, an asset-based loan is lent against company's assets. Senior stretch loan is the mix of the two.

Cash flow loans are usually senior term loans or subordinated debt

Subordinated debt

In finance, subordinated debt is debt which ranks after other debts should a company fall into receivership or bankruptcy....

, being used for funding growth or financing an acquisition.

See also

• Asset-based loan
• Senior stretch loan
  Senior stretch loan
  A senior stretch loan, or overadvance loan, is a hybrid debt instrument consisting of both asset-based loan and cash flow loan. Such loans are suitable for two types of companies:...
  
  
• Seniority (finance)