Clearbanc is one of the newest and fastest-growing players in the business financing game. Founded in 2015, this Toronto-based startup has financed thousands of companies, including mattress manufacturer Leesa Sleep, fashion-rental service Le Tote, and home goods supplier Public Goods.
Clearbanc’s growth and competitive edge can be attributed to its highly specific target clientele. Though they offer just one product, its requirements cater to two of the most promising industries: eCommerce and SaaS, which stands for “software as a service.” Popular SaaS companies include Slack, Mailchimp, Square, and Salesforce. Clearbanc’s product is exclusively designed for the unique financial circumstances these businesses face.
In this guide, we’ll answer the following and more:
- What Is Clearbanc?
- What Do You Need to Apply for Clearbanc?
- How Do You Apply for Clearbanc?
- What Are the Advantages of Clearbanc?
- What Are the Disadvantages of Clearbanc?
- Which Industries is Clearbanc Best for?
- How Long Does it Take to Get Financing from Clearbanc?
- What Type of Funding Products Does Clearbanc Have?
- Is Clearbanc the Same as a Merchant Cash Advance?
- What If Clearbanc declines me?
What Is Clearbanc?
Clearbanc is a form of debt financing that works very similarly to a merchant cash advance. You can borrow up to $10 million, and there is no set due date on when the loan must be paid back in full.
Clearbanc is only available for several industries. These industries include:
- SaaS (software as a service)
- Online retailers
- Subscriptions companies
- Mobile apps with in-app purchases
- Marketplace (beta)
The cost of the loan is also heavily influenced by how you use the funds.
Clearbanc was created as an alternative to venture capital. Up until fairly recently, venture capital was the most accessible source of funding for tech startups. Many startups would reportedly end up using most of their venture capital to cover just a few considerable expenses.
This leaves the startup with very little money to cover other vital expenses, like labor and equipment. And since venture capital is a form of equity financing, the business leader loses a portion of ownership. As a result, the business leader has less personal funds to re-invest back into the business.
Clearbanc is striving to eliminate this problem by giving young businesses another way to cover these massive startup expenses.
What Do You Need to Apply for Clearbanc?
To apply for Clearbanc, you will need to supply the following information:
- Bank account and routing number
- Basic information about the business, like your EIN
- Basic information about all officers and directors
- Articles of incorporation
- State-issued ID
Other Important Factors for Clearbanc
Clearbanc is exclusively designed for just six types of companies. All other industries need not apply. Clearbanc is perhaps the only business financing company with such a strict limitation on clientele. But this just shows how confident Clearbanc is in the rise of these few industries.
Another considerably restrictive requirement is average monthly revenue: at least $10,000. Once again, this requirement merely reflects Clearbanc’s projections for eCommerce and SaaS companies. You can’t blame them. In the near future, $10,000 could very well be the standard for monthly revenue in both industries.
Considering the high growth rate of eCommerce and SaaS companies, it’s no surprise that Clearbanc only works with limited liability companies (LLCs) and corporations.
Clearbanc clients can be in business for as little as six months. However, eligible businesses must have at least six months of consistent revenue as well. Though the criteria for “consistent” isn’t clear, it’s probably safe to assume that businesses with occasional dips in revenue or startups that ran into a little trouble early on won’t qualify.
Lastly, Clearbanc has no minimum requirement for a personal credit score. Thus, there is no credit check in the application process.
With Clearbanc, You Need To Know That:
Clearbanc’s repayment structure is the same as a merchant cash advance. Every time you make a sale, Clearbanc takes a percentage of it until the total amount is paid back in full.
The loan has two percentages. First is the fixed percentage of future debit and credit card sales from the previous section. The second percentage is also fixed, but it works more like a flat fee. This percentage can range from 6% to 12.5%.
The percentage of each sale that Clearbanc takes is based on cash flow. Businesses with highly consistent cash flow can pay as little as 1% of each sale, while businesses with rockier cash flow can pay up to 20%.
The second percentage, on the other hand, is based on entirely different criteria.
If you visit Clearbanc’s website, you will see a list of popular marketing channels like Facebook, Google, Amazon, and Twitter. Companies that use Clearbanc funds to buy ads from this vendor list will automatically be given a flat fee of 6%. Clearbanc also offers inventory financing for eCommerce businesses that need to make large upfront purchases. However, it’s not clear if this purpose also guarantees a flat fee of 6%.
If you use the funds for purposes aside from digital marketing or inventory, your flat fee could be as high as 12.5%.
The minimum borrowing amount is $10,000. Payments are not reported to the personal or business credit bureaus. Thus, timely repayments won’t affect your personal or business credit score.
Also, Clearbanc does not require collateral or a personal guarantee. This means that if the business defaults on the loan, Clearbanc cannot seize the business owner’s personal assets to make up for the lost funds.
How To Apply With Clearbanc:
The full application process (applying to receive funding) usually takes 1-2 business days. Here’s how to get started:
Step 1: Create an Account
Applying for a Clearbanc loan requires creating an account on their website. This requires basic information about your business and yourself (the business leader). After entering this information, click “Calculate Now.”
Step 2: Speak to a Representative
Once you’ve created an account, a representative from Clearbanc’s investment team should contact you within 1-2 business days. However, this doesn’t mean you’ve been fully approved. It just means you’ve been cleared to complete the rest of the application. This step ensures that Clearbanc doesn’t waste time fielding applications from businesses that don’t meet their general requirements.
Step 3: Review Offers
When you log back into your account, you will be able to review loan offers. You will also see instructions about uploading documents and completing the rest of the application.
Step 4: Connect Your Sales and Payment Accounts
Then, connect Clearbanc to the online accounts you use to make sales and payments (PayPal, Square, Stripe, etc.). Remember, Clearbanc is used entirely by online-based companies. Since these companies provide products and services online, all of their sales and payments are conducted via online accounts.
Step 5: Connect Your Digital Marketing Accounts
Next, connect Clearbanc with the online accounts you use for digital marketing (Facebook, Google, Amazon, etc.). It usually takes about 20 minutes to enter the data from all of your accounts.
Step 6: Sign Your Loan Documents
After entering all of your data, you will receive a loan contract that contains your borrowing amount, fixed fee, and repayment percentage. Funds should then appear in your bank account within 24 hours.
Clearbanc: Post Funding
Like a traditional merchant cash advance, repayments begin as soon as you make sales. Clearbanc will deduct the percentage of your daily sales that were disclosed in your contract. After you sign the contract, you cannot adjust your fee or repayment percentage.
Since there’s no due date, you keep making payments until the full amount is paid off, regardless of how long that takes.
Even if you haven’t paid off your loan in full, Clearbanc may allow you to apply for more funds if you meet certain criteria, including:
- Your revenue has increased dramatically since you originally applied.
- You have repaid at least 80% of your original amount.
- You did not receive the maximum borrowing amount when you originally applied.
- Your business has created a new source of income.
What Are the Advantages of Clearbanc?
As you can see, Clearbanc’s products are geared towards a highly specific type of customer. Eligible businesses must belong to the aforementioned industries and earn an average of $10,000 in monthly revenue. For this reason, we will consider the advantages of Clearbanc under the assumption that your business fits this criterion.
Let’s say you’re a young, growing business that’s looking for a large borrowing amount. Qualifying for a bank loan might be difficult, considering you probably can’t meet the requirements for time in business and credit score. You could seek venture capital, but this would involve sacrificing a portion of ownership and profits.
Clearbanc’s creators envisioned this exact scenario when designing their product. Even though you’ve been in business for just six months and don’t have excellent credit, you could still access up to $10 million.
If you use the funds for digital marketing, you’d have a fixed fee of just 6%. This is substantially lower than the fee for a traditional merchant cash advance. Compared to other forms of financing, a merchant cash advance is one of the more expensive options. Many businesses cannot afford to put that kind of pressure on their cash flow. But if you can meet Clearbanc’s monthly revenue threshold, you should have no problem affording the cost of a Clearbanc loan.
What Are the Disadvantages of Clearbanc?
If you do not belong to Clearbanc’s target clientele, it simply does not make sense to apply. Let’s say you meet only one aspect of this criterion, like your industry. If you own an eCommerce business that’s a few years old, you could probably access products that are more conducive to cash flow than a merchant cash advance. Older businesses may have higher credit scores or might want to use the funds for purposes other than digital marketing or inventory.
Thus, like the previous section, we will consider the disadvantages under the assumption that you do indeed belong to Clearbanc’s target clientele.
In the past, young businesses with subpar credit could not access high amounts, low rates, and long terms. But the business financing industry has changed dramatically as of late. Many business financing companies now prioritize cash flow over credit score or time in business. If you can meet Clearbanc’s monthly revenue threshold, your credit score or time in business might not stop you from accessing higher amounts and low rates. Compared to Clearbanc, these options might contain more convenient repayment structures. You probably wouldn’t have to use the funds for a specific purpose to access lower rates.
In summary, a merchant cash advance might not be the only available option for a young business with fantastic revenue.
Frequently Asked Questions
Here are some questions potential clients might have about Clearbanc:
Which Industries is Clearbanc Best for?
Clearbanc is available for six types of businesses: eCommerce, SaaS, online retailers, subscription companies, mobile apps with in-app purchases, and marketplace (beta). However, eCommerce and SaaS companies are more likely to meet the other requirements for the approval of these industries. This is because eCommerce and SaaS companies tend to grow very quickly and rely heavily on digital marketing.
How Long Does it Take to Get Financing from Clearbanc?
The process of completing the application and receiving funding usually takes about 1-2 business days.
What Type of Funding Products Does Clearbanc Have?
Clearbanc has one product, and its repayment structure is the same as a merchant cash advance. To clarify, every Clearbanc client follows the same repayment structure. However, two clients could pay very different rates due to factors like cash flow, industry, and the use of funds.
Is Clearbanc the Same as a Merchant Cash Advance?
Yes, the repayment structure for Clearbanc is the same as a merchant cash advance. Clearbanc takes a percentage of each sale until the loan is paid back in full. The main difference between Clearbanc loans and a traditional merchant cash advance is that in addition to cash flow, the loan’s cost depends on how you use the funds.
What if I’m Declined by Clearbanc?
If Clearbanc rejects your application, it’s probably because you don’t meet their standards for “consistent revenue.” Even if you generate $10,000 per month, Clearbanc might still reject your application if they see occasional dips in revenue or cash flow shortages. This situation is fairly common with business financing companies that rely primarily on computer algorithms to assess financial health. Remember, a merchant cash advance requires daily payments. Clearbanc might determine that your daily cash flow cannot withstand this repayment structure.
But tumultuous revenue doesn’t have to stop you from accessing the borrowing amounts, terms, and rates you’re looking for. Several other business financing companies offer similar products as Clearbanc and cater to younger businesses. To clarify, you can still get a substantial merchant cash advance with subpar credit.
These other companies will also make sure that a merchant cash advance is even the right product for your cash flow in the first place. For example, your cash flow may be better suited for another product that takes weekly, bi-weekly, or monthly payments. Younger businesses now have a myriad of highly affordable options to choose from, including business term loans.
Clearbanc: Making Your Decision
Clearbanc’s target clientele’s specificity suggests that any business that strays from this group should look elsewhere for funding. This is especially true for businesses that are over six months old or businesses with strong personal credit. Do you have the cash flow and monthly revenue to qualify for Clearbanc, but your business is at least a year old? If so, you can almost definitely find a business loan that is significantly more advantageous than Clearbanc’s merchant cash advance.
Also, owners of eCommerce and SaaS companies should not assume that they have fewer options because they belong to non-traditional industries. These businesses are the future of the economy. If anything, the ball is in their court. When you’re taking the time to explore different options, business financing companies are developing better products exclusively for your needs.
Odds are, it won’t be long before another company can offer the same borrowing amounts and requirements as Clearbanc but for a much lower price.