Revenue Based Finance

Revenue-based financing is an alternative funding solution for small or medium enterprises seeking additional capital. A revenue-based finance lender will provide companies with capital for a percentage of their future revenue. Unlike equity financing, where a company has to give up partial ownership (and therefore control) of their company, revenue-based financing ends after the initial capital is repaid, giving business owners more freedom.

There are two kinds of revenue-based finance — a revenue advance or a merchant cash advance. In a revenue advance, lenders receive a percentage of a company’s total monthly turnover. Payments are generally taken monthly, which means high costs and can extend the time it takes to repay the revenue finance.

Repayments are tied to the company’s credit or debit card sales: whenever they process a sale where the customer pays with credit or debit card, a percentage of that sale goes to the lender. You don’t need to worry about not making payments during less profitable months — any sale you make will automatically pay off a portion of the advance.

Revenue-based financing is an excellent alternative to traditional financing options, like bank loans or venture capital. Here are a few of the reasons why revenue-based finance could be the best way to fund your business:

• Companies often have to give away equity, personal guarantees, or board seats when working with traditional lenders. This isn’t a concern with revenue-based financing. Businesses can retain ownership of their business and fully control their business plan.
• Revenue-based finance can be secured much faster than other finance options like bank loans, venture capital, or debt financing.
• You don’t need to provide a personal guarantee to benefit from revenue-based financing, significantly reducing your risk.
• Repayment is flexible as it’s based on how much the company makes (thus “revenue-based” finance). Companies with high monthly revenues can repay their loans much faster.

Does your business need a traditional loan alternative? Revenue-based financing is a great way to acquire the capital necessary to grow your business. Below, we’ve listed some of the opportunities available to a company that’s received revenue-based finance:

• If your business needs a physical space to operate (like an office or warehousing), revenue-based finance can help you pay the lease or rent for the property. Since 365 Finance offers up to £400,000 with our merchant cash advance, you even have the option of purchasing a property outright for your business.
• For many businesses, specialised and expensive equipment is an unavoidable expense, as it’s essential for continued operation. Revenue-based finance can help your company purchase anything from manufacturing tools to digital solutions.
• Expanding your business is much easier when you utilise revenue -based financing, as the money can help you pay employee wages or fund recruitment to build your team.

With so many finance options available, it’s vital to make sure that you pick the best option available. For instance, certain business models are particularly well-suited to revenue-based financing:

• Business with seasonal performance: Businesses with a clearly defined “peak season” can use revenue-based finance to invest in new stock before the season, then repay the funding using the high revenue from the peak season.
• Businesses using the subscription model: Subscription model businesses have very consistent revenue, which means RBF can be repaid quickly.
• Ecommerce businesses: Because these businesses operate almost entirely online, it’s easy for them to forecast their performance based on data from their business accounting or analytics tools. Revenue-based financing works well with ecommerce companies because if they foresee a low-income period, financing can be quickly and easily acquired to fill the gap.

Revenue-based finance payments are based on a company’s revenue, so having a high monthly income can help you pay off your loan faster. However, the specifics of the repayments depend on the type of financing provided.

For revenue advances, a company will make monthly payments based on its total revenue. This total includes income from all sources, including cash payments, invoices, and card or debit payments.

365 Finance offers merchant cash advances, which have different repayment terms. A merchant cash advance only takes payments from credit and debit card transactions. These payments are made automatically — repayment is worked out with the business’ card terminal provider, so you don’t need to worry about paying a lump sum every month.