Revenue-Based Financing to accelerate your business growth

There are plenty of benefits of using revenue-based financing for raising capital compared to traditional loans. There is flexibility in repayment as funding is dependent upon the company’s revenue. So, if a business performs better, the repayment rate increases but if the performance is down, then the repayment amount would be low too. Moreover, the approval and funding processes of revenue-based financing is typically quicker than other types of financing. And unlike traditional loans, revenue-based financing usually doesn't usually need personal guarantees or collateral. And there is no need for equity dilution. All these and more make revenue-based financing a popular option with small businesses.

Revenue-based financing can have several impacts on your credit. Since this loan is intertwined with your business’s revenue, and not personal credit, it won’t affect your personal credit score. But in case of defaults, your business’s credit profile will take the brunt of it. So, make sure you do timely payments.

Since revenue-based financing is tied to your business revenue, it means payments are adjusted based on the revenue. In a nutshell, if your sales drop, your payments will decrease proportionately, which will help you navigate those slow months of sales. But if you can’t make the payment at all, it might put you at risk of getting any loans in the future and you will be liable for penalties by the lender.

A lot of businesses prefer opting for revenue-based financing because of its flexible repayment structure and the fact that it is not based on equity. But this type of loan is best suited for businesses with fluctuating revenues. These can include seasonal businesses, e-commerce, SaaS, subscription-based businesses or startups.

You don’t have to worry. This is where the flexible repayment structure of revenue-based financing comes in. If your business income increases, the repayment will proportionately increase. Same goes if your income decreases, your payment amount will decrease accordingly. For example, if you have taken a loan of $50000 against 10% of your monthly sales and your revenue in the 1st month is $20000 then your repayment amount will be $2000. If you make $40000 in the second month, the repayment amount will be $4000 but if your revenue drops in the next month to $10000 then you will have to pay $1000. This continues until you have completely paid the loan in full.