Revenue based financing vs bank loan comes up a lot with business owners we talk to. Most of them have already tried the bank route or are thinking about it and want to know what the alternative actually looks like before they commit to either one.
How a Bank Loan Works
You go to your bank, fill out an application, hand over a stack of documents. Tax returns, financial statements, business plan, bank statements going back two or three years. They review everything which takes a couple weeks minimum. Then they come back asking for more. Maybe they want to see your lease, maybe they want an appraisal on your equipment.
If they approve you they’ll likely ask for collateral. Your property, your equipment, a personal guarantee. The rates are lower because the bank has all that security behind the deal but the process can take a month or more and plenty of businesses don’t get approved even after going through all of it.
How Revenue Based Financing Works
A lender looks at your sales. How much revenue your business is generating, how consistent it is. If the numbers work you get an advance on your future receivables. There’s a fixed cost attached and you pay it back through daily or weekly payments over a set term.
No collateral. No personal guarantee. At Canada Capital we’ve funded businesses the same day they applied. Most hear back within 24 hours. More detail on how the process works on our revenue based financing page.
Revenue Based Financing vs Bank Loan on Cost
Bank loans are cheaper. The bank has your collateral, they’ve spent weeks evaluating risk, and they have a personal guarantee as a safety net. All of that means lower rates.
Revenue based financing costs more because the lender has none of that. No collateral, no personal guarantee, and decisions are made in hours not weeks. More risk for the lender means higher pricing for you. You know the total cost before you sign but it will be more than a bank would charge.
Whether that matters depends on your situation. Some business owners are fine paying more because they need the money now and can’t wait six weeks for a bank to make up its mind. Others have time and strong credit and the bank makes more sense for them.
Revenue Based Financing vs Bank Loan on Speed
Banks take weeks. Sometimes over a month with all the back and forth on documents. Revenue based financing can happen in a day. We’re looking at your current sales not your entire financial history going back three years so there’s less to review.
Revenue Based Financing vs Bank Loan on Requirements
Banks want good credit, two plus years in business, collateral, extensive documentation, and sometimes a business plan on top of all that. Revenue based financing is based on your business revenue. Credit is a factor but not the main one. No collateral, no personal guarantee. If your business has consistent sales coming in you can qualify even if a bank already said no. We go into more detail about why banks decline businesses here.
So Which One
A bank loan costs less if you can get one. But a lot of small businesses in Canada either don’t qualify, can’t wait that long, or aren’t comfortable signing a personal guarantee. That’s where revenue based financing comes in.
We offer revenue based financing along with unsecured business loans, business lines of credit, and small business capital. Apply here and our team will figure out what fits.