Revenue based financing has become increasingly popular over recent years, and with good reason. Not only is it an easy way to obtain capital for your new business venture, but also a great way to attract investors. Some revenue based lenders even offer amazing incentives!
But what makes this financing option so popular today? To answer this, let's take a look at some of the benefits you can enjoy from it.
It Offers Quick Funding
Most loans typically take weeks if not months to process, which delays the release of the money you need to jumpstart your business. But not revenue based financing! Upon submitting your application, the money will get released in as little as seven to ten days. This makes the financing option quite convenient for entrepreneurs who need quick funding. Or course, the time of release will ultimately depend on the provider. So best do your research before applying first.
The Application Process is Simple
Not only does revenue based financing offer quick capital; it also comes with a fairly simple application process. Most providers only require you to submit the necessary documents, alongside the accomplished application form. Some of them even provide apps where you can send in your application via your smartphone! Again, this will depend on the revenue based lender, so browse their website first. Anyway, once you've submitted the paperwork, all that's left is waiting for the screening interview (if any) and the release of the loan.
It Needs Minimal Credit Requirements
Speaking of requirements, it doesn't take too much to get revenue based financing. Most lenders only require the minimum criteria (e.g., good FICO score, valid IDs, bank statements, etc). This basically makes the financing option accessible to people with poor credit scores and non-existent credit history. The only caveat is that the lender will ask for a percentage of your company's future gross revenues until the debt is repaid.
You Won't Need a Collateral
Another reason why revenue based lending is so popular now-a-days is because you don't need to pledge an asset as security payment. The portion of your business' future gross revenues will basically serve as your collateral for the borrowed money, paying off your debts at regular intervals. This makes it more appealing compared to bank loans, despite the higher rates that sometimes come with it.
It Comes With Short Financing Terms
Revenue based financing terms usually range from 4 to 18 months, relatively shorter than the repayment terms offered by banks and other lending providers. This allows you to settle the loan within a shorter period of time. However, keep in mind that certain revenue based lenders offer their services in exchange for monthly repayment plans. While this is okay for companies that already have a steady stream of income, it's not suitable for businesses who just started out. Best ask about the repayment terms before applying.
You Retain Control of Your Business
Revenue based lending is similar to equity financing in many ways. For one thing, both are provided by inventors and venture capitalists. The lenders will also receive a share of your business' profits, at least until you settle the debt. However, this is where their similarities end. As far as ownership is concerned, you'll retain full control of your company. That means any decisions related to your business' operations and other stuff is still yours to make.
It Provides Two-Way Incentives
Another factor that sets revenue based lending from equity financing is the mutual benefits it provides for both borrower and lender. For lenders, it's a terrific way to enjoy large returns on their 'investment'. Basically, the higher your future gross revenues are, the higher their monthly percentage will be. Meanwhile, having revenue based investors in your business helps boost its reputation to a certain degree. Plus, it gives you access to people who can mentor you as you begin your venture, increasing your chances of succeeding.
As you can see, revenue based financing is a great way to fund your newly opened business. Offering generous terms alongside a simple application process, it can easily help you get all the capital you need to jumpstart your venture. And that's the main reason it's so hot right now. So the next time you're out looking for a business loan, best consider getting this one.