How does revenue based financing work? It’s pretty straightforward. A lender looks at your business sales, gives you an advance based on that revenue, and you pay it back over time. No collateral, no personal guarantee in most cases, and it moves faster than dealing with a bank.
How Does Revenue Based Financing Work Step by Step
You apply with a lender and they look at your recent sales. Bank statements, transaction history, how much your business is generating monthly. If it makes sense they give you a lump sum. That money goes into your business account and you start paying it back through daily or weekly payments.
Some lenders structure payments so they move with your revenue. Others set a fixed daily or weekly amount based on what your business can handle. Terms range from a few months to two years depending on the deal.
How Does Revenue Based Financing Work Compared to a Bank Loan
Banks want credit history, years of financials, collateral, sometimes a personal guarantee. They take weeks to decide and a lot of small businesses get turned down. We wrote about the most common reasons here.
Revenue based financing doesn’t rely on any of that. The decision is based on your sales. Credit score isn’t the main factor. You don’t need to own property or pledge equipment. You don’t need to sign anything that puts your personal assets at risk.
It costs more though. No collateral means the lender takes on more risk and the pricing is higher than what a bank would charge. That’s true across the industry.
What Can You Use It For
Whatever your business needs. Payroll, inventory, equipment, marketing, renovations, hiring, covering a slow stretch, putting a deposit down on a big job. No restrictions.
Who Uses Revenue Based Financing
All kinds of businesses. A restaurant owner who needs to get through a slow January. A contractor who landed a big job but needs $40,000 upfront for materials before the first payment comes in. A retail store restocking before the holiday rush. An e-commerce business scaling up ad spend because something is working and they want to push it harder.
The one thing they all have in common is revenue coming in consistently. If you’re wondering how does revenue based financing work for different industries the answer is the same across the board. Your sales are what qualify you.
How Fast Is It
Banks take weeks. At Canada Capital we’ve funded businesses the same day they applied. Most people hear back within 24 hours. It’s faster because we’re looking at your sales not requesting documents for three weeks straight.
How to Know if Revenue Based Financing Works for Your Business
If your business has consistent revenue and you need capital faster than a bank can deliver then yeah revenue based financing is worth considering. A lot of the businesses we work with either got declined by a bank or didn’t want to wait that long in the first place.
More details on our revenue based financing page. We also offer unsecured business loans, business lines of credit, and small business capital depending on what fits. Apply here if you want to see what you’d qualify for.