FACTORING 

The amount you can borrow is determined by your total monthly receipts. This can often allow borrowers to access larger funding amounts compared to a merchant cash advance, which bases the advance solely on debit and credit card sales.

Depending on your cash flow patterns, the lender will decide on the most suitable payment structure (daily, weekly, monthly). They will then deduct a percentage of your revenue based on the chosen repayment frequency. This percentage, typically below 10%, is referred to as a “capture rate.” Higher revenue periods result in higher payments, and vice versa.

While payment amounts fluctuate with sales, you are required to repay the total amount within a specified timeframe.

Revenue-based financing allows businesses to leverage their recurring revenue effectively. If your revenue has shown significant growth over the past three months, you can likely access a substantial amount of capital. Unlike traditional loans, where factors like credit score or annual revenue heavily influence loan size, revenue-based financing offers access to larger amounts even with poor credit or without collateral.

One of its primary advantages is flexible repayment terms. Instead of fixed payments that can strain during slow periods, you repay a fixed percentage of your sales. This flexibility is particularly beneficial for seasonal businesses, as the total loan cost decreases when payments are spread out. It allows you to use funds during slower seasons without facing substantial repayment burdens until sales pick up in busier times.

Unlike merchant cash advances, revenue-based business loans are not restricted to businesses with high debit and credit card sales. It doesn’t matter which payment methods your customers use, as long as your monthly revenue is high.

Moreover, revenue-based financing typically offers longer terms compared to merchant cash advances. While the latter often requires daily payments, revenue-based loans can be structured with monthly, weekly, or daily repayment options.

Approved businesses typically meet the following criteria:

• Annual Revenue: $120,000+
• Credit Score: 525+
• Time in Business: 4 months+

A revenue-based loan offers more than just financing for your company—it’s also a chance to build or enhance your credit score.

Ensure you make all required payments on time and in full, whether it’s a line of credit or another form of revolving credit. Keeping your balance below the credit limit is essential.

Consistently meeting your business financing obligations improves your credit rating, leading to better interest rates and terms for future financing needs.

If your application is declined, it could be due to timing issues related to your cash flow. Revenue-based financing primarily considers monthly revenue rather than annual revenue or gross margins. Therefore, strong sales over the past three months are crucial for approval. Sometimes, additional statements may be required to demonstrate consistent performance during previous payback periods.

While revenue-based financing is accessible for borrowers with poor credit, the cause of credit issues matters. Bad credit may stem from uncontrollable circumstances, but excessive existing debt could suggest an inability to manage more debt responsibly. In such cases, lenders may perceive additional borrowing as potentially detrimental to your business.