Revenue Based Loan Overview

Revenue Based Loans are not actually a loan but a transaction in which a business sells a percentage of its future sales at a discount in exchange for up-front capital. A Merchant Cash Advance is a specific type of Revenue Based Loan where the business sells a percentage of its future credit card sales.

Repayment is based on a fixed percentage of sales until the loan is repaid which means, in month where sales are higher more money will go towards repayment of the funding; however, in months where sales are lower, less money goes towards repayment. Not only is this variably payment aspect attractive for seasonal businesses or businesses where revenues can fluctuate greatly making it difficult to forecast revenue, but if the business has a string of successive high sales months, it allows the loan to be repaid much quicker.

How To Qualify For A Revenue Based Loan

Revenue based loans, including a merchant cash advance, are among the easiest type of business loans to qualify for since they don't require collateral, a personal guarantee, or even a high credit score. Approvals are based almost entirely on business revenues, so if you have been in business for more than 90 days and can demonstrate approximately $7,500 per month in business revenue, you can qualify for a revenue based loan.

How Much Money Can I Qualify For And How Quick Can I Get Funded

With a revenue based loans, borrowers can receive up to $2 million however, how much they will actually qualify for is based on industry and business history. Generally, borrowers will qualify for approximately 80%-100% of monthly revenues, so if the business does $25,000 per month in revenues, they should qualify for approximately $20,000-$25,000 on a revenue based loan. Funding occurs very quickly with approvals typically taking less than 48 hours and funding withing just a few days.

Is a Revenue Based Loan Right For Me?

Whether or not a revenue based loan is right for you is highly dependent on the intended use of the funds and profit margin of the business. Because there is no collateral, personal guarantee, or high credit score required for a revenue based loan or merchant cash advance, the risks are much higher to the lender so, accordingly, interest rates are also higher which tends to make them a poor solution for a debt consolidation loan or to simply add general operating capital. And, if the business operates on low margins, they may find it difficult to repay the higher rates associated with a revenue based loan. However, if the business can report high consistent revenues and proits, a revenue based loan can be a great option since it will be easy for the business to quickly repay the debt.

Revenue based loans tend to work best in two types situations. First, if the business can make money with the borrowed money, such as expanding operations, purchasing inventory to fill orders, or running a marketing campaign to bring in immediate sales. Next, revenue based loans are also a good solution to quickly raise capital for emergency situations such as the ability to make payroll or pay a due tax bill.