Revenue-Based Financing

No matter the scale of your company, we specialize in finding funding programs tailored to your needs!

Intro To Revenue-Based Financing

Traditional small business loans often come with rigid repayment terms, requiring fixed monthly payments that might not align with the variable nature of business cycles. This can be particularly challenging for businesses experiencing seasonal revenue fluctuations. For enterprises in industries with periodic revenue peaks and troughs, Revenue-Based Financing offers a more adaptable solution.

Revenue-Based Financing provides flexibility by tying repayments directly to your business’s revenue. Unlike conventional loans, which mandate fixed monthly payments regardless of sales variations, this financing option allows repayments to fluctuate in line with your revenue stream. This feature makes it ideal for businesses with irregular income patterns.

This type of financing offers significant flexibility and ease of qualification, primarily based on your sales volume. While similar to merchant cash advances, Revenue-Based Financing is not limited to businesses with substantial debit and credit card sales. It provides access to larger borrowing amounts and longer repayment periods, catering to a variety of business needs.

In this comprehensive guide, we will delve into the intricacies and benefits of Revenue-Based Financing, exploring how it can serve your business effectively.

What Is Revenue-Based Financing?

Revenue-Based Financing, also known as a “business cash advance” or “revenue-based business loan,” provides a lump sum linked to your monthly revenue. Unlike traditional loans with fixed monthly payments, this financing option offers flexible repayment terms. Payments can be structured on a daily, weekly, or monthly basis, depending on the lender.

In essence, revenue-based financing functions similarly to a merchant cash advance, with repayments fluctuating according to your sales volume. However, unlike merchant cash advances, which draw payments from debit and credit card sales, revenue-based loans are repaid from your total sales revenue.

MAX FUNDING AMOUNT

$5K – $5M

FACTOR RATES

Starting at 1-6% p/mo

TERM

3 – 24 months

SPEED

1-2 Business days

How Does Revenue-Based Financing Work?

Revenue-Based Financing, also known as a “business cash advance” or “revenue-based business loan,” provides borrowing amounts based on your total monthly receipts, which can often exceed those available through a merchant cash advance that relies solely on debit and credit card sales.

The repayment structure in revenue-based financing is designed to accommodate your cash flow patterns. Lenders typically offer flexible payment frequencies such as daily, weekly, or monthly. They deduct a percentage of your revenue, known as a “capture rate,” usually below 10%, according to your chosen repayment schedule. This means higher payments during periods of strong revenue and lower payments during slower periods.

Despite the payment fluctuations tied to sales, the entire borrowed amount must be repaid within a specified timeframe.

Recent reports highlight the growing popularity of revenue-based loans:

In 2023, 22% of small businesses secured financing from online lenders, up from 17% in 2020, according to the 2023 Small Business Credit Survey.

The global alternative financing market, valued at $6.57 billion in 2021, is projected to grow to $10.61 billion by 2030, with an average annual growth rate of 6.17%, as reported by Straits Research.

A study by Pymnts revealed that 62% of Main Street Small and Medium-Sized Businesses (SMBs) earning $150,000 annually lacked access to funding to cover potential cash flow gaps. Similarly, 50% of SMBs with annual revenues ranging from $150,000 to $1 million faced similar challenges in securing adequate funding.

What Are The Advantages of Revenue-Based Business Loans?

Revenue-based financing provides businesses with the opportunity to leverage their recurring revenue effectively. If your business has demonstrated significant revenue growth over the past three months, you may qualify for a substantial amount of capital through this financing option. Unlike traditional loans, factors such as credit score or annual revenue play a minimal role in determining the loan size. This makes revenue-based financing a viable choice for accessing larger sums, even with poor credit or without collateral, which can be challenging with other types of financing.

One of the primary advantages of revenue-based financing is its flexible repayment terms. Instead of fixed payments that can strain cash flow during slower periods, you repay a fixed percentage of your sales. This flexibility is particularly advantageous for seasonal businesses, allowing for lower payments during off-peak seasons and higher payments when sales increase during peak times. This repayment structure helps to minimize the overall cost of the loan, as payments are aligned with revenue fluctuations.

Unlike merchant cash advances, which rely on debit and credit card sales, revenue-based business loans accommodate businesses regardless of their customers’ preferred payment methods. As long as your business generates consistent monthly revenue, you can typically qualify for this type of financing.

Moreover, revenue-based financing often offers longer repayment terms compared to merchant cash advances. While merchant cash advances may require daily payments, revenue-based loans can be structured with monthly, weekly, or daily repayment schedules, providing additional flexibility for businesses to manage their cash flow effectively.

What Are The Disadvantages of Revenue-Based Business Loans?

Businesses encountering obstacles in qualifying for traditional financing options or needing quick access to capital often turn to revenue-based financing agreements. These entrepreneurs may face challenges such as poor credit histories, which typically reduce their chances of securing term loans or lines of credit. Lenders perceive poor credit as a higher risk, leading to concerns about timely repayment.

Products like revenue-based financing and merchant cash advances impose higher rates and fees to mitigate these risks. Revenue-based small business loans often carry higher costs compared to merchant cash advances due to their larger borrowing limits and longer repayment terms. As a result, businesses are likely to accrue considerable interest expenses over the course of the loan.

PROS
CONS

Revenue-Based Financing Compared To Other Products

LOAN TYPES
MAX AMOUNTS
RATES
SPEED

Who Qualifies For Revenue-Based Financing?

Approved businesses generally met the following criteria:

ANNUAL REVENUE

$120K+

CREDIT SCORE

525+

TIME IN BUSINESS

4 months+

How To Apply For Revenue-Based Financing:

Securing a revenue-based business loan is a streamlined process designed to provide quick access to capital. Here’s a step-by-step guide to get started:

Step 1: Assess Your Needs

Before starting your application, it’s crucial to ensure that a revenue-based loan suits your specific business needs. Evaluate whether the financing aligns with your goals and if the repayment terms fit your cash flow. Define the exact amount of funding required to avoid unnecessary borrowing.

Step 2: Gather Required Documents

Prepare the following documents for the application process:

Step 3: Complete the Application

Initiate the application process by contacting us via phone or filling out a brief online form. Provide the necessary details, including the funding amount you are seeking.

Step 4: Consult with a Representative

Once your application is submitted, a representative will contact you to discuss repayment terms, applicable interest rates, and qualifying terms. This ensures transparency, preventing any surprises or hidden fees during the repayment period.

Step 5: Approval and Funding

Upon approval, funds are typically deposited into your bank account within 1-2 business days.

Managing Your Revenue-Based Loan

Your revenue-based loan not only provides vital financial support but also presents an opportunity to strengthen your credit profile. Here’s how you can maximize its benefits:

  • Ensure all scheduled payments are made promptly and in full.
  • Maintain a balance below the credit limit if using a line of credit or other revolving credit.

Consistently meeting these obligations can positively impact your credit score, enhancing eligibility for better interest rates and terms in future financing endeavors.

What If I’m Declined For Revenue-Based Financing?

If your application for revenue-based financing isn’t approved, it could be due to timing issues related to your cash flow. This financing option heavily weighs your monthly revenue rather than annual revenue or gross margins. Therefore, strong sales over the past three months can significantly enhance your approval prospects. Providing statements that demonstrate consistent repayment performance over the past year may also strengthen your application.

While revenue-based financing is accessible for borrowers with poor credit histories, the reasons behind the credit issues are crucial. Some factors leading to poor credit may be beyond your control, while others could indicate a significant debt burden that might affect your ability to manage additional loans responsibly.

At 800Funding, we specialize in guiding you through alternative financing options tailored to your specific situation. If revenue-based financing isn’t the best fit, we may suggest more suitable and cost-effective tools, such as business credit cards or personal loans. These alternatives are typically easier to qualify for and can provide the capital you need without the stringent requirements of traditional business loans.

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