This considers the borrower’s present cash flows, the loan amount is based on the capacity of the borrower to repay the loan. The repayment schedule is based on the borrower’s timing of cash flows, collateral is not the primary consideration. Some examples of this are micro-enterprise loans, salary loans, business loans.
Advantages: Default due to fund diversion minimized, loan size, terms and repayment based on borrower’s cash flow, best suited for short-term, working capital loans.
Disadvantages: Loan size may be conservative as it is relative to repayment capacity, this could work against lower-income earners or people who may be asset rich, without significant cash-flow revenue.
Above, we can see why Joltify can be utilized for businesses to have more liquidity at hand, meaning that they can better facilitate their creditors and debtors. We have used an example of a 60-day payment cycle above.