What Is A Revenue Based Business Loan?
A revenue based business loan is nearly identical to a merchant cash advance. But instead of just debit and credit card sales, eligibility depends on monthly revenue as a whole. So, you may need to show a certain amount of monthly revenue from the past few months in order to qualify. The other primary factors for eligibility are how quickly your monthly revenue is likely to grow and how much more revenue you are projected to receive. Credit score will not impact your application because your business lender will be more concerned with your business’s future, not the inconveniences of the past.
Your total funding amount will likely be a multiple of your monthly revenue, like, 1x – 2x.
Like a merchant cash advance, payments are deducted as a fixed percentage of your monthly revenue. The “capture rate” percentage may be negotiable but it is generally below 10% so as to have as little effect on cashflow as possible. So, while you will be making daily payments, the amount depends on how much revenue you make each day. Think of it as selling a percentage of your future revenue in exchange for a lump sum to be put towards a revenue-generating investment.
What Do I Need A Revenue Based Business Loan For?
A revenue based business loan can be used for a wide range of purposes. But, because this business funding program is so dependent on revenue, it is extremely helpful to prepare a solid internal business plan that explains how much your desired investment will increase revenue over a certain period. Your chances of approval might also be higher if your revenues are subscription-based or easily predictable through a monthly, recurring system.
Examples of investments that are appropriate for revenue based business loans are product development, hiring more salespeople, or mass marketing initiatives. The overarching theme of these investments is the direct connection between spending a certain amount of money to reach a specific goal. For instance, an applicant might say that by hiring a certain amount of salespeople, monthly sales will increase by a certain percentage.
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And since you do not have to make fixed payments each month, revenue based business loans will likely be approved for long-term investments. In these situations, a slow month is actually more of a strength than a weakness because it lets you devote more attention to executing your plan. After all, the most lucrative initiatives usually take more time to carry out. Apply now to see how much you qualify for!