Obtaining a traditional business loan is a lengthy process and requires a great deal of documentation. When you apply for a conventional business loan, you'll need to submit various documents regarding your company and its financial standing. While the exact documentation needed is different between lenders, some of the common requirements include a business plan, credit reports, personal and business tax returns, financial statements and the list goes on.
Although traditional lenders are beginning to loosen their belts; a high level of scrutiny is still imposed when reviewing a business for a loan. If time is a luxury you simply don't have there is an alternative funding program that enables you to get a quick business loan approval in 2 business days and funding as fast as 7 business days.
Why It's Called a Revenue-Based Loan
Revenue-based financing also known as cash flow based lending is the ideal funding solution for business owners who are in need of fast funding. Rather than the standard and cumbersome process of qualifying and obtaining a traditional business loan; a revenue-based loan requires a simple application and 3 months recent bank and merchant statements.
Keep in mind this is not a merchant cash advance, which is an alternative funding program based solely on your company's monthly credit card sales. This is a loan based on your company's bank deposits. The best part is it's a quick business loan because it's simple and it's based on the revenues generated by your business. No need to furnish collateral, tax returns, financials, business plans or any other piles of documents traditional lenders have you supply.
In addition to fast funding and its simplicity, a revenue-based loan is optimal for the un-bankable business owner. Personal credit challenges plague a large percentage of small business owners today preventing them from qualifying for a conventional business loan.
Since revenue-based loans are primarily based on revenues, less emphasis is placed on the creditworthiness of the business owner. A minimum 550 FICO score is all that is required and at least five deposits per month into the company's checking account totaling annual gross revenues of at least $120k.
How Do You Pay Back a Revenue-Based Business Loan?
Repayments are much different with a revenue-based loan compared to a traditional business loan. Rather than making a large monthly payment each month, repayments are made in small daily increments from your company's checking account via Automated Clearing House (ACH).
For example, let's suppose you obtained a revenue-based business loan for $10,000k with 6-month repayment terms. With a 1.24 loan rate, there would be a daily ACH of $96.12 withdrawn from your company's checking account with no drafts during the weekends for a period of 6 months totaling $12,400. These small daily increments make it much easier for a small business owner to handle as opposed to paying a large monthly payment.
Which Business Industry Is Revenue-Based Financing Ideal For?
Some of the most popular industries for this type of cash flow based funding program are medical offices, restaurants, beauty salons, furniture stores, hotels, supermarkets, gasoline stations, sporting goods stores, health food stores, clothing stores, cleaning services, hardware stores, jewelry stores, nail salons, retail stores, and beer, wine and liquor stores.
It's important to note there are also restrictions for this program as well. Some industries simply do not qualify for this type of financing program. These include but are not limited to mortgage lenders, check cashing stores, collection agencies, travel agencies, dealerships, physical fitness facilities, real estate brokers, tax preparation services, ticket brokers and pawn shops.
As you can see revenue-based financing offers small business owners the opportunity to get a quick business loan without having to subject themselves to all the rigorous analysis, cumbersome paperwork, lengthy process, and aggravating timelines that come with traditional business loans.