Revenue Based Financing: What is it and how can it Help Grow Your Business?

May 2023

Jan 2025

If you’re an entrepreneur seeking affordable funding options for your business without giving up equity or being burdened by debt, Revenue-Based Financing (RBF) might be just what you’re looking for! RBF has been steadily rising in popularity among growth-stage companies, and for good reason; the flexibility and unique blend of equity and debt financing is changing the game as it keeps you in control every step of the way.But that’s not all. A whole world of revenue-based avenues, such as Merchant Cash Advances and Factoring are entering the scene too!In this article, we will dive into the world of RBF, its alternatives, and provide you with valuable resources to help you make an informed decision about financing your business.

What is Revenue Based Financing?

Revenue Based Financing is a new type of funding that combines the convenience of a business loan with the peace of mind of flexible repayment options.Instead of a set monthly repayment, RBF allows your company to trade a percentage of sales for start-up capital. This allows you and the investor, as it provides the funds you need without tying up valuable equity or incurring debt. Your investor can rest easy knowing that they will receive regular payments (though the amounts may vary) under a legally binding contract.

HOW IT WORKS:

1. Find an Investor

Venture capital firms, dedicated RBF investors, or angel investors are a good place to start.

2. Pitch Your Business

Present your business plan, financials and growth projections to the investor. Show them your intended use of the funds and your company’s potential for generating consistent revenue.

3. Negotiate Terms

If the investor is interested, this is where you will negotiate the investment amount, percentage of revenue shared, repayment cap, and anything else that is pertinent to the deal.

4. Sign on the Dotted Line

Once the terms are agreed upon, both you and the investor sign a legally binding document that outlines the specifics of the deal.

5. Put the Funds to Use

Receive your funds (usually in a lump sum), and put them to work in marketing, product development, hiring, or other areas that will propel your company’s growth forward.

6. Monthly Payments

As your business starts generating revenue, repay your investor based on the agreed-upon monthly percentage.

7. The Repayment Cap

Once you have hit the predetermined repayment cap, your obligation to the investor is fulfilled, and you retain full control of your business.

RBF Alternative: Merchant Cash Advances

If your business is retail based or receives a high volume of revenue from credit card transactions (such as a restaurant), Merchant Cash Advances may be a more suitable financing option. With MCA, you exchange a percentage of future credit card sales for the lump sum investment.

HOW IT WORKS:

1. Apply for MCA

Once you find a reputable Merchant Cash Advance provider, apply for funding using the above-mentioned information for your business, as well as your credit card transaction history.

2. Receive the Funds

Again, usually a lump sum.

3. Repay Via Sales

MCA offers a big advantage in that you have quick access to the funds, and the flexibility of repayments being tied to sales, which eliminates the need for collateral. However, MCA’s can be more expensive than a traditional loan, and the deduction from your daily sales may impact your cash flow for a time. Learn more about Merchant Cash Advances here.

RBT Alternative: Factoring

Factoring is also known as accounts receivable financing or invoice financing. It may work best for you if your business is facing cash flow issues due to slow-paying clients. With factoring, you sell your unpaid invoices to a factoring company at a discount, and they take care of collecting the funds.

HOW IT WORKS:

1. Find a Reputable Factoring Company

Preferably one that specializes in your industry.

2. Sell Your Unpaid Invoices to the Factoring Company at a Discounted Rate

Usually 70-90% of the invoice amount.

3. Get Paid Upfront

The Factoring company will subtract their fees and pay you the agreed upon amount right away.

4. Invoice Collection

Now it’s out of your hands, and the factoring company takes care of collecting the overdue amount from your clients!

5. Receive the Remaining Balance

Once the client pays, the Factoring Company will send you the remaining balance, minus their fees. Factoring eliminates the need for you to waste time chasing after clients to pay their invoices, and gives you quick access to the funds, relieving your financial stress. However, like merchant cash advances, factoring can be more expensive than a traditional loan.

Choosing the Right Financing Option

After reading this article and looking into the different financing options for your business, you hopefully have an idea of which option is best for your business. Ultimately though, the biggest factors to consider are:

Your Business Industry
Your Revenue Model
Company Growth Stage
Repayment Flexibility

Once you determine those, you can make the choice that works best to propel your business forward! Revenue Based Financing is getting more creative and attainable as the structure of our economy evolves. It really is becoming the financing option of the future.

February 25, 2019

January 24, 2025

The Top 4 Small to MediumSized Business Trends in 2019

Every new year brings new tools, techniques, and strategies that help small and medium-sized businesses succeed in an increasingly competitive world. Here are the top four business trends you need to look out for in 2019.

Cybersecurity

Cyber attacks are going to become a more common threat to small and medium-sized businesses. Everyone is a vulnerable target. Whereas many companies are actively preventing attacks, there will be a shift to proactive detection and response in the year to come.

Personalization

The personal touch is going to rein in 2019. Personalized marketing campaigns, transparency, and personal calls-to-action are going to be the ways to connect with potential customers.

Go Remote

The remote office is becoming increasingly a part of today’s business trends world. Small and mid-sized businesses can now reduce operating costs by rethinking their staffing strategies with the use of a remote workforce. With so many low-cost telecommunications platforms available, the days of the cubicle are now on the decline.

Reviews Are Key

Some business leaders resist social media use in the office, but social posting is a great way to connect with your local audience and get valuable reviews. Nearly 95 percent of shoppers read online reviews before making a purchase. It’s worth taking the time to gather testimonials and write case studies more now than ever.If you are looking to grow your business in 2019, there are alternatives to a traditional bank loan you should consider. For details on how you can get approved for a merchant cash advance, speak to one of our experts today.

April 13, 2023

January 24, 2025

Business Loan in Canada

There is a wide array of services available to businesses in Canada seeking to bolster their cash liquidity. This article will explore some of the most popular options, as well as their best use cases. These financial solutions typically include a combination of bank loans, CEBA loans, government business grants, factoring, cash advances, payday loans, and microloans.

Businesses can utilize these financial options to optimize growth, gain liquidity, bridge emergency situations, or capitalize on opportunities.

Let's delve into our options:

1. Traditional bank loans

This is the most conventional form of financing that small businesses can utilize to obtain Typically, these loans are secured by collateral, and may offer lower interest rates, making them an appealing choice for businesses with strong credit. However, small and medium-sized businesses adhering to conservatism and GAAP principles might have lower perceived financial strength, which can make obtaining traditional financing more challenging, especially if the bank relies on financial statements as part of its due diligence process. This can be particularly problematic for new startups and businesses without a significant financial track record. Furthermore, liquidity provided might be limited if a business is relatively new or experiencing volatility, even with collateral in place.

2. CEBA loans

The Canada Emergency Business Account (CEBA) loans are interest-free loans of up to $60,000 designed for small businesses impacted by the COVID-19 pandemic. These loans are 100% backed by the government and do not require any collateral. Businesses can use these loans to cover operating expenses such as payroll and rent, as well as for purchasing equipment or expanding their operations. The CEBA loans offer flexibility and accessibility with a few caveats. Firstly, the loan forgiveness repayment date has been extended to December 31, 2023, for CEBA loan holders in good standing. This means that loan holders may have to start repaying their CEBA loans as early as 2024. Secondly, eligibility is only applicable to businesses that have had an active business account with their financial institution as of March 1, 2020, and can demonstrate a decline in revenue due to the pandemic.

3. Factoring

Factoring enables businesses to sell their accounts receivable (invoices) to a third-party (a factoring company) at a discount. The factoring company then acts as the agent to collect payments from the invoice customer, providing the business with liquidity (cash) based on a certain percentage of the invoice amount. Factoring can significantly improve cash flow for small and medium-sized businesses by offering liquidity and quick access to funds. It is also helpful that the factoring company will be the one taking care of ensuring invoices are paid, freeing up valuable resources for small businesses.

4. Government business grants

The Canadian government provides an array of business grants designed to help small businesses flourish and These grantstypically target specific industries or business activities, such as clean technology, innovation, workforce development, and international trade, among others. A considerable number of grants currently emphasize research, development, and exporting. The application process for these grants can be intricate, requiring well-prepared grant proposals that effectively communicate the business's objectives, anticipated outcomes, and potential impact. This process is often competitive, as numerous businesses vie for the limited funding available. Newer businesses or those without prior grant writing experience may find this process daunting, and may benefit from seeking professional grant writing assistance or collaborating with experienced partners in their industry. Despite the challenges, securing a government grant can be a game-changer for small businesses, providing essential funding without the burden of repayment, and fostering growth, innovation, and competitiveness in the marketplace.

5. Payday loans or Microloans

Payday loans and microloans are small, short-term loans that are typically utilized to address unexpected expenses or navigate temporary cash flow gaps. While these loans may not be suitable for long-term financing needs due to their relatively higher interest rates and fees, they play a vital role in providing financial support during emergencies. By offering quick access to funds, payday loans and microloans help businesses remain afloat and operational during challenging times, allowing them to successfully weather temporary cash flow issues that are anticipated to improve in the near future. This targeted financial assistance can be a lifeline for businesses, enabling them to maintain stability and continue serving their customers as they work towards recovery and growth.

6. Cash Advance

A cash advance, particularly in the form of a Merchant Cash Advance (MCA), is an innovative financing solution that provides businesses with a lump sum of cash in exchange for a percentage of their future sales (typically credit card sales). Cash advances and MCAs can be exceptional financing options for businesses that need funds swiftly or require increased liquidity to seize opportunities that demand prompt. One of the key advantages of this financing option is its speed and flexibility. Cash advances can be processed more quickly than traditional loans, often within a matter of days, allowing businesses to address their financial needs without delay. Additionally, repayment terms are tailored to the business's sales volume, making it a more manageable solution for businesses with fluctuating revenues. MCAs are particularly valuable for new businesses and small enterprises that may face challenges in obtaining traditional bank loans due to a lack of financial history, inadequate financial book strength, or a dearth of collateral. By offering an alternative financing avenue, cash advances empower these businesses to overcome financial barriers and pursue their growth objectives. Ultimately, the various financing options available to Canadian businesses each have their own strengths and specific use cases. Traditional bank loans can be attractive for businesses with strong credit, while CEBA loans offer interest-free financing for those affected by the COVID-19 pandemic. Factoring provides immediate liquidity to businesses with outstanding invoices, and government grants can support targeted industries and activities. Payday loans or microloans can assist in managing short-term cash flow gaps. And cash advances offer rapid access to funds for businesses lacking financial history or collateral. The choice of financing option will depend on the unique needs and circumstances of each business. By understanding the advantages and limitations of each option, businesses can make informed decisions about the most suitable financing solution to support their growth, liquidity, and success.

June 5, 2019

January 24, 2025

How to Expand Your Business with Merchant Cash Advance Benefits

Cash flow issues are a concern for most small and mid-sized business owners. In fact, many SMBs find it difficult to manage growth because of concerns about funds. Having access to the right funding makes it easier to support business growth. There are many different choices out there, but a merchant cash advance might be one you want to consider. Not convinced an MCA is the right choice for your business? Take a look at these Merchant Cash advance benefits and discover how MCAs could help you grow.

Lightning-Fast Access to Funds with a Merchant Cash Advance

One of the biggest benefits of an MCA is how fast you can access the funds you need to grow your business. Whether you need to cover a bill or you want to put a new marketing strategy in place, an MCA helps you do it sooner.Traditional loans can take months to arrive in your bank account. That’s after all the work of preparing your application and waiting for approval too.With an MCA, you could have the funds in your account in a matter of hours.

Think about the Future, Not Your Past

Most traditional forms of business funding rely on your financial history. Lenders will look at your credit score. If you’ve missed a payment or two, you might not qualify for a loan.An MCA is more forward-thinking. Instead of checking your credit score, the lender estimates future credit and debit sales.The lender then offers you a lump sum based on where you’re going, not where you’ve been. If your credit score is less than stellar, an MCA could be the right choice to help your business grow.You also don’t need to provide personal guarantees like you would with a loan.

Merchant Cash Advance Benefits Include More Flexibility

Flexibility is another reason to consider merchant cash advances for your expanding business.A traditional loan offers you a one-time, lump-sum payment. You’ll then pay the amount back with monthly scheduled payments.Merchant cash advances are different. Instead of paying the same fee every month, the MCA is repaid by a percentage of your credit and debit sales.If your sales dip one month, so too will your payment to the MCA. If you have higher than expected sales, your payment will increase too. This can help you pay back the MCA faster.This flexibility makes it much easier for a growing business to manage repayment. With merchant cash advances, you can stop worrying about making your loan payment.

Use Funds as You See Fit

With a traditional bank loan, you may have to tell the lender what you’ll use the funds for. Loan approval is then tied to buying equipment or investing in real estate.What if your needs change from month to month? Market conditions change quickly, and businesses like yours need to stay one step ahead.With a merchant cash advance, you’re in control of how the funds are spent. If you need to pay bills today and invest in a new website tomorrow, an MCA can make it happen.

Ready, Set, Grow

If you’ve been wondering how to fund your business’s growth, consider a merchant cash advance. The easy application process means you could have the funds you need in short order.If you’re not sure an MCA is right for your business, get in touch with us. We can help you discover the right alternative lending solution for your business.