Top 5 Benefits of Revenue-Based Financing
Did you know "unbankable" small businesses and entrepreneurs are turning to revenue-based financing as an alternative funding source?
While companies with hard assets and stellar credit ratings should usually qualify for a typical bank loan, what about companies that also generate revenues but have no collateral and less than perfect credit?
That’s where revenue-based financing shines and offers a viable alternative for bank-blocked entrepreneurs and small business owners.
What is revenue-based financing?
Revenue based financing, also known as cash flow-based lending, is simply financing that is based on the revenues generated by the business, in particular the company’s bank deposits.
Here are the top five benefits of revenue-based financing:
1. Minimal credit requirements
A business owner is required to have a minimum FICO® score of 550 to qualify for this type of funding. This enables the unbankable business owner to acquire the funding needed, even with personal credit challenges.
2. No collateral required
While many conventional business loans require some form of collateral, revenue-based financing doesn’t. Although rates are slightly higher than traditional bank rates, the fact that no collateral is required makes it an attractive funding program for many business owners.
3. Short financing terms
With this type of financing, terms range from four to 18 months, enabling a business to pay off the loan in a much shorter period of time.
4. Simple application process
Unlike the long and excessive amounts of information required for a traditional bank loan, to apply for revenue-based financing application requires only a simple one-page application. The only other documentation required is the company’s past three months’ bank and merchant services statements.
5. Quick to fund
Once the application is submitted, funding can take as little as seven to 10 days, making it an extremely fast and convenient way for a business owner to get access to funds in a hurry.
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Restrictions and unique aspects
It’s important to note while revenue-based financing is a powerful way for a business owner to obtain funding, there are certain restrictions. Some businesses in certain industries may not qualify for this program depending on the lender.
Another unique aspect to the program is the terms of repayment. Unlike a fixed monthly payment that comes with a traditional loan, payments are made in small increments on a daily basis electronically from the company’s checking account.
Revenue-based financing gives businesses the funding they need
Whether a business is looking to fund their operations, acquire another business, buy new equipment, or expand, revenue-based financing offers an opportunity for business owners to get the funding they need where traditional banks don’t.
