Revenue based loans

What is finance based on revenue?

If a small or medium business needs more finance, an alternative funding option is revenue-based financing. A revenue-based finance lender will lend businesses money in exchange for a portion of their potential future earnings. Revenue-based financing, which terminates once the initial capital is repaid and gives business owners more independence, differs from equity financing in that a corporation is not required to give up all ownership (and thus control) of their organisation.

Advances are granted on the assumption that businesses will repay a certain percentage of their monthly revenue. For example, if a company borrows £100,000, it may agree to repay 6% of its monthly sales.

In contrast to lower-revenue months, higher-revenue months will have a larger monthly repayment and a shorter overall payback term. Lower-revenue months will have a smaller monthly repayment and a longer overall repayment period. Revenue based loans are used by many different types of business, allowing a fixed amount of cash injection into the business to aid growth or pay overheads. Raising capital for your business isn’t always straightforward, we work with several finance providers that will lend against your future revenues, meaning funding for your business should be easily achieved. Not everyone has access to different types of funding sources, here at Smart Funding Solutions, we have a panel of 300+ funders.

Why Your Business Should Consider Revenue-Based Financing

The traditional forms of business financing options, such as bank loans and a venture capital firm, can be effectively replaced with revenue-based financing. Several factors suggest that revenue-based financing may be the most effective method for financing your company:

When engaging with traditional lenders, companies frequently have to give up equity, personal guarantees, or board seats. In the case of revenue-based financing, this is unimportant.
Businesses have complete ownership and control over their company.
Compared to alternative financing methods like bank loans, venture capital, or debt financing, revenue-based financing can be obtained significantly more quickly.
Repayment is determined by how much the business makes, therefore it is flexible.
Businesses with large monthly incomes can pay off their loans much more quickly.

You won’t be battling to pay back a debt your business can no longer afford if your sales decline for a couple of months.
The corporation remains entirely under the founders’ and directors’ hands. This is essential for firms that have the potential for rapid growth but require funding to get there.
Since personal assets are not required as security for the loan, it is a less risky option than conventional debt financing.
It is possible to arrange for quick funding and revenue-based financing within 24 hours.
Works well in conjunction with other sources of funding.

Industries that can benefit from a revenue based loan

Businesses that experience seasonal fluctuations in performance might utilise revenue-based financing to purchase new inventory before the season and then pay back the loan with the high sales during the peak season.

It’s crucial to choose the finest loan for your business given the variety of possibilities accessible. As an illustration, the following business models work especially well with revenue-based financing:

Companies that use the subscription model: Revenue Based Funding can be swiftly repaid because subscription model businesses have relatively steady revenue. For instance, SaaS and subscription firms get payments every month, therefore be aware of your expected monthly revenue. They are better able to make monthly repayments thanks to this consistency and their low overhead costs.

E-commerce businesses can easily predict their success using information from their business accounting or analytics tools because these companies run virtually exclusively online. eCommerce businesses benefit from revenue-based finance because it is quick and simple to secure funding to bridge any gaps that may arise should they anticipate a low-income period.

Our lenders cover most sources of income, including:

We can also help if you sell on websites like:

We can also help if you sell on websites like:

Merchant cash advance

Different terms for repayment apply to merchant cash advances. Only credit card and debit card transactions can be used to pay for a merchant cash advance. These payments are done automatically; payback is arranged with the company that provides the card terminal, so you don’t have to bother about making a one-time payment each month.

An unsecured business loan substitute is merchant funding, also known as a corporate cash advance. This £3,000–£1,000,000 short-term cash infusion works with you to assist your cash flow and business needs. There is neither an APR* nor any additional fees, unlike standard credit solutions! You just agree to a modest payment that is paid back over a specified percentage of your future credit card and debit card sales, usually over 6 to 12 months.

Merchant finance advances example: A 10% payback sweep would occur if you executed a sale for £100 through your card company; you would pocket £90 and £10 would be automatically paid toward the advance.

Revenue based loan

A revenue advance, on the other hand, combines aspects of a merchant cash advance with a more traditional bank loan. Revenue advance financing options take a percentage of overall firm revenue as opposed to relying just on credit or debit card sales. Invoices from and to consumers and vendors are also included in this. Instead of being paid back daily or weekly like with merchant cash advances, payments are made once a month.
A business will pay monthly payments for revenue advances based on its overall revenue. This sum reflects all revenue, including cash payments, invoicing, and credit or debit card payments.

Revenue based loan example: To further understand how this kind of financing functions, let’s look at an example of a revenue advance. An advance of £50,000 as a revenue cash advance in exchange for 10% of future profits being paid back to the loan. Based on their total monthly profits, the first three months’ repayments look like this:

  • November – £50,000 profits = £5000 in repayments
  • December – £70,000 profits = £7000 in repayments
  • January – £30,000 profits = £3000 in repayments

Do you meet the criteria for revenue-based financing?

What can a revenue based loan be used for?

Does your company require an alternative to standard loans? Revenue-based finance is a fantastic approach to getting the money you need to expand your company. We’ve outlined a few of the chances a business with revenue-based financing might take advantage of below:

Revenue-based financing might assist you in paying the lease or rent for the property if your firm requires a physical area to operate (such as an office or warehouse). With our revenue-based funders, you even have the option of buying property altogether for your business. Our lenders offer loans up to £10,000,000.

Specialized and expensive equipment is often a necessary expense for enterprises because it keeps them operating.

Utilizing revenue-based financing makes it simpler to expand your firm because it can be used to pay staff salaries or finance hiring new team members.

Use Open Banking to repay depending on upcoming sales

You must disclose your bank information through Open Banking, which is simple, safe, and secure, to apply for the Revenue Based Loan. There’s no need to gather bank statements or divulge your password.

Here’s how open banking was created with security at its core:

Open banking leverages software and security solutions that have been thoroughly vetted for bank-level security. Never will you be required to share your bank login information or password with anyone.

It’s governed – only apps and websites governed by the FCA or a European equivalent can join the open banking Directory.

You have complete control over when and how long access to your data is granted.

Extra security: If there’s a fraudulent payment, your bank or building society will reimburse you. You are also covered by data protection regulations and the Financial Ombudsman Service.

Revenue-based financing might assist you in paying the lease or rent for the property if your firm requires a physical area to operate (such as an office or warehouse). With our revenue-based funders, you even have the option of buying property altogether for your business. Our lenders offer loans up to £10,000,000.

Specialized and expensive equipment is often a necessary expense for enterprises because it keeps them operating. Revenue-based financing might assist your business in buying everything from digital solutions to industrial equipment.

Utilizing revenue-based financing makes it simpler to expand your firm because it can be used to pay staff salaries or finance hiring new team members.

How much can I borrow?

The amount of money that lenders are ready to lend you depends on your recurring income. Most cap the maximum loan at four to seven times monthly recurring sales or up to a third of the company’s annual recurring revenue (ARR) (MRR). The range of loans available from our lenders ranges between £10k to £5m.

Depending on whether you intend to use the money for lower-risk, higher-risk, or predictable revenue-generating activities like recruiting or advertising, repayment costs typically range from 6 to 12 per cent of revenue.

How does revenue based finance compare to other funding options?

Understanding the different funding options is key when determining which facility would fit your business and current circumstances. We’ve compiled together some alternative funding options to see how they compare.

Unsecured business loan

Unsecured business loans enforce a set repayment amount with interest over a specified period. In contrast to revenue-based financing, the repayments are for a fixed sum each month and must be fully satisfied.

Unsecured business loans can be a helpful method to get a big infusion of cash, but it can also be very risky if your sales are inconsistent or you’re in a volatile market.

Revenue-based financing is becoming a more common option for business owners because it doesn’t demand a personal guarantee, years’ worth of financial statements, or a lengthy wait for funds to arrive.

Revolving credit facility

Similar to an overdraft, a revolving credit facility allows your business to withdraw money as needed to cover a variety of business needs.

Pay interest only when you utilise the facility – The interest rate on a credit facility loan is fixed, and interest is only due when the facility is used. If you are not using it, there is no need to pay interest. You can easily manage this funding option.

Invoice finance

In invoice financing, unpaid client invoices are utilised to symbolise money owed to your business. The lender will buy the invoice from you at a reduced price rather than waiting for customers to pay it, allowing you to get around the usual payment terms.

In as little as 24 hours, you might receive a cash advance of up to 95% of the invoice’s value. You don’t need to finance each invoice because this operates as a revolving facility.

Secured business loan

An asset is pledged as collateral for a secured business loan, which enables businesses to borrow money. This kind of loan is sometimes referred to as asset-backed lending.

You might use a home, piece of equipment, or piece of land as security for a secured company loan, which ranges from £5,000 to more than £2 million.

Can I apply if I have bad credit?

Even if you have a poor credit history, a revenue-based loan or merchant cash advance can function as a negative credit business loan and is a quick and flexible option to receive capital finance.

Applying for a loan can be challenging if you have bad credit. Your financing alternatives will be constrained because you are seen as a dangerous borrower, and you’ll probably have to pay higher interest rates. There are always other ways to get money, even if your application for a standard bank loan was turned down because of a poor credit score.

When a company or individual fails to make payments on time repeatedly, it is referred to as having bad credit. This can lead to a history of debt and a negative credit score.

Your credit score may be impacted by many things, including unpaid or overdue invoices, county court judgments (CCJs), declaring bankruptcy or insolvency, or defaulting on a credit agreement.

Is revenue based funding right for you?

For young, expanding businesses looking for immediate access to cash without dilution of shares or time-consuming capital raising, revenue-based finance is the ideal solution.

Get in contact with our team immediately to discuss whether this finance option is the best choice for your company. After receiving your application, we can provide you with funding in as short as seven days!

Apply for a revenue based loan

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How does it work?

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A member of the team will be in touch to collect some basic information. This helps us understand the type of funding that would best suit your business.

We find the best funding for you

We use the information you provided to source the best funding options for you and your business using our panel of over 250 lenders.

We present your options

We’ll then present you will all of the funding options available to you and give you time to decide which one you would like to proceed with.

Frequently Asked Questions

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A revenue-based loan is a type of financing where the repayment amount is based on a percentage of the borrower’s monthly revenue.

Unlike traditional loans that require fixed monthly payments, revenue-based loans offer more flexibility in repayment. The repayment amount is directly linked to the borrower’s revenue, so if the revenue is higher, the repayment amount is higher, and vice versa.

The terms of a revenue-based loan vary depending on the lender, but generally, repayment terms range from 6 months to 3 years

Revenue-based loans can be used for various business purposes, including working capital, inventory purchase, equipment upgrades, marketing initiatives, and expansion plans.

Lenders typically consider the business’s revenue and financial history to assess eligibility. They may review bank statements, tax returns, and other financial documents to determine the loan amount and terms.

Revenue-based loans are often unsecured, meaning they typically don’t require collateral. This makes them accessible to businesses that may not have significant assets to pledge as collateral.

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While credit history may be considered, revenue-based loans focus primarily on the business’s revenue performance. This means that businesses with less-than-perfect credit may still be eligible for a revenue-based loan.

The time it takes to receive funds from a revenue-based loan depends on the lender’s process and the completeness of your application. Generally, it can take anywhere from a few hours to a few days to receive the funds.

Most revenue-based loans allow for early repayment without penalties. Repaying the loan early can potentially save on interest costs.

The loan amount you can borrow depends on your business’s revenue and the lender’s policies. Typically, lenders offer loans ranging from 1x-3x your average monthly revenue.

One potential downside of revenue-based loans is that they may come with higher interest rates compared to traditional loans. Additionally, businesses that experience significant fluctuations in revenue may find it challenging to predict and manage monthly repayment amounts.

Repayments for revenue-based loans are typically made via a direct debit or an agreed-upon percentage of monthly revenue is deducted to repay the loan.

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