Disclaimer: Information in the revenue-based financing articles is provided for general information only, does not constitute financial advice, and does not necessarily describe Biz2Credit commercial financing products. In fact, information in the revenue-based financing articles often covers financial products that Biz2Credit does not currently offer.

How to Choose the Right Funding Partner for Your Business?

For any small business, financing is crucial to a company’s growth. But aligning business goals with the right type of funding is where most small businesses struggle. One of the financing options that most small businesses tend to opt for is revenue-based financing (RBF). There are many advantages with other funding options too, but what works for revenue-based financing is its non-dilutive and flexible repayment features.

However, as much as choosing the right funding is important, it is also vital that businesses choose the right funding partner to see them through this journey. That’s why, in this article, we will discuss RBF and compare a few popular revenue-based financing companies so that you can choose the best option for your business.

3 Key Takeaways

Flexibility and Cash Flow Management: Revenue-based financing provides capital in exchange for a percentage of the company’s future revenue. Its repayment terms align with a business’s regular cash flow, which reduces financial burden during low revenue months.

Fast Access to Working Capital: Compared to traditional bank loans, most revenue-based financing companies tend to process applications faster, allowing businesses to get the funds they need within a short time frame.

Multiple Financing Options: Online lenders like Square Capital and Shopify Capital provide tailored financing options designed to meet the unique needs of different businesses, in most industries.

What is Revenue-Based Financing (RBF)?

In layman’s terms, revenue-based financing is a type of alternative funding method which offers capital in exchange for a percentage of company’s gross revenue. Most traditional bank loans levy fixed monthly installments that may make it difficult for businesses with fluctuating monthly revenue to repay the loan during lean periods. So, the repayment is proportional to monthly income earned, which does not put a strain on a firm’s regular cash flow. It differs from equity financing too as it does not require borrowers to dilute their company’s equity. Rather, funders receive a percentage of the business’s monthly revenue on an ongoing basis.

This financing option is often processed quicker than traditional bank loans, making the required capital available fast. This is perfect for businesses with urgent capital needs. Another feature of RBF is that it does not require collateral to get funding, making it easier for firms without significant assets to seek necessary funds. It is also less restrictive than traditional bank loans, which allow businesses with low credit scores or substantial assets to get funding without much hassle.

What is a Revenue-Based Financing Company?

Revenue-based financing companies offer a unique financing solution that links repayment with a business’s monthly revenue. These funders cater to different business needs and industries. Since these companies provide businesses with fast access to capital and flexible repayment options, it becomes vital for business owners to compare their offerings and find the best fit.

Why Would a Small Business Use Revenue-Based Financing?

Most small businesses face fluctuating cash flows, making them not the best applicants for traditional loans with fixed monthly payments. That’s where revenue-based financing comes into play. This flexible repayment structure allows businesses to pay more during months with high revenue and less during slow periods. This flexibility also ensures that companies do not strain their cash flow and have steady RBF does not require business owners to give up any share of their company. This feature makes it popular with entrepreneurs wanting to retain complete business control.