A revenue-based cuts out 95% of the due diligence involved in a traditional loan and uses non-conventional underwriting methods for approval. This loan does not look at the debt service or debt ratio but it uses the most recent 4-6 months of cash flow statements and you can borrow up to 80% of those average monthly deposits. The terms can range from 3 – 18 months but the average term is between 6-12 months.
This loan does not calculate interest against principle but it charges a flat fee based on the amount you borrow, the length of the term, and positive or negative factors such as length of time in business, owner credit score, daily average balances, and overall cash flow management.
The more positive factors a client has the more percentage of gross sales they can borrow. The cash flow loan will lend about 6% – 10 % of gross annual sales compared to a conventional term loan which can lend up to 25% of gross annual sales.
How does this loan work?
The loan is broken down into micropayments which are debited from the borrower’s business bank account Monday through Friday, no weekends or holidays. Typically there are 20 – 21 business days in each month and those are the days payments will be debited.
The revenue-based loan is not interest bearing but a flat fee is charged and that cost can be expressed as “cents on the dollar”. The revenue loan comes at a premium but they can move very quickly in time sensitive situations or for businesses with credit hurdles and low levels of profitability.
How long does it take to fund?
The great thing about a revenue based loan is the speed, from start to fund is only a 2 – 3-day process; this can be very helpful in time sensitive situations.
Who does this make sense for?
Anyone with a cash flowing business but it’s a niche product for those with credit hurdles, low profitability, time constraints, or when the business has been open for less than 2 years.
How do I know if I qualify?
If your business has existed for at least 6 months, your business bank account is showing at least $15,000 in monthly deposits for 3 consecutive months, and your credit is above a 500 on Experian, then you are eligible. It’s that simple.