What is Revenue Based Working Capital?
Revenue based working capital loans, also known as revenue-based financing, MCA are a type of funding where a business secures capital in exchange for a percentage of its future revenues. This model is particularly popular among startups and companies with predictable revenue streams, such as SaaS businesses, because it offers flexible repayment terms that adjust based on the company’s income.
Ideal Candidates for Revenue Based Financing:
- SaaS Companies: These businesses often have subscription-based revenue models, making them ideal candidates due to their predictable cash flows.
- E-Commerce Stores: Companies that need to invest in inventory but prefer lower initial payments that scale with sales can benefit from this financing model.
- Seasonal Businesses: Businesses that experience fluctuating income throughout the year can manage their cash flow more effectively with flexible repayment.
- Startups and Small Businesses: Those that might not have enough credit history to qualify for traditional loans can use revenue-based financing to access necessary capital.
- High Cash flow business like retail, restaurants, and service services.
Uses for Revenue Based Funding:
Businesses can use the capital from revenue based loans for various purposes, including purchasing inventory, funding marketing campaigns, covering operational expenses, and hiring additional staff.
Revenue-based working capital is a financing model that provides businesses with upfront capital in exchange for a fixed percentage of future revenue. This type of financing is particularly suitable for companies with fluctuating or unpredictable income, as repayments are tied directly to the revenue generated by the business.
Key Features of Revenue Based Working Capital Loans:
- Capital Injection: Businesses receive a lump sum of capital based on their anticipated revenue.
- Repayment: Instead of fixed monthly payments, repayments are made as a percentage of monthly revenue. This means that during months of high revenue, repayments are higher, and during slower months, repayments decrease.
- Flexibility: This model offers flexibility, as businesses are not burdened with fixed debt payments that can strain cash flow during slow periods.
Benefits of Revenue Based Funding
- Non-Dilutive: Owners retain full control and equity in their business.
- Flexible Repayments: Payments vary with revenue, reducing financial strain during low-income periods.
- Quick Access to Capital: Faster than traditional loans, often with less stringent approval requirements.
- Credit minimum goes as low as 500.
Application Process and Requirements with Liberty Capital
Application Process for Revenue Based Working Capital Loan:
- Online Application: Complete a simple online application through Liberty Capital’s website.
- Approval: The approval process is swift, often within 24 hours.
- Funding: Once approved, funds can be deposited into your business account quickly.
- Low Doc Funding: Documents required prior to funding can be as little as Driver’s license and voided check.
Requirements:
- Minimum Time in Business: At least 3 months.
- Monthly Revenue: A minimum of $5,000.
- Business Bank Account: Required for the deposit and repayments.
- No Minimum Credit Score: Credit score is not a determining factor for approval.
This financing option is ideal for businesses looking for a quick and flexible funding solution to support growth, manage cash flow, or invest in new opportunities without giving up equity or collateral.
Overall, revenue based working capital loans provide a versatile and flexible financing option for businesses with steady revenue streams, enabling them to grow without the constraints of traditional debt or the dilution of equity.
Revenue-Based Working Capital (RBC) and Merchant Cash Advances (MCA) are both forms of financing tailored to businesses with variable or seasonal revenue, but they differ significantly in structure and terms.
Revenue Based Working Capital Requirements:
- Minimum Monthly Revenue: Average monthly revenue of $15,000 for newer companies.
- Structure: Revenue based working capital involves lending a lump sum to a business in exchange for a percentage of future revenue until a predetermined repayment cap is met.
- Rate factor often ranges from 1.35 to 3.0 times the original loan amount.
- Repayment: Payments fluctuate with the business’s monthly revenue, ensuring that businesses pay more when revenue is high and less when it’s low. This flexible payment structure helps manage cash flow more effectively.
- Eligibility: Eligibility is based on the overall monthly revenue of the business, not just credit card sales. This makes it suitable for businesses with diverse income streams. Additionally, it usually doesn’t require collateral or personal guarantees.
- Cost of Capital: While potentially expensive, the cost transparency from the beginning allows businesses to understand their total repayment obligation without hidden fees.
Similarities between Merchant Cash Advance and Revenue Based Funding:
It’s subjective on who uses merchant cash advance as their source of funding. It’s not for everybody, that’s why there are other products that you might qualify so it’s critical to work with a trusted small business loan broker.
Some due to the fact that they’re unbankable. Purely based on purchase of future revenue, revenue-based loan is a purchase agreement form of funding. Commonly associated with high rate short term with faster frequency in payment repayment, daily or weekly.
- Term Structure: An MCA involves providing a lump sum to a business in exchange for a portion of its future credit and debit card sales. The MCA provider essentially purchases a percentage of the business’s future revenue at a discount.
- Repayment: Repayments are typically made daily or weekly, based on a fixed percentage of the business’s daily credit card sales. This can create cash flow pressures, especially if sales are inconsistent.
- Credit Eligibility: MCAs are easier to qualify for than traditional loans and are suitable for businesses with substantial credit card sales. They don’t require a good credit score, collateral, or a fixed repayment schedule, which makes them accessible but potentially more costly.
- Cost of Capital: MCAs are generally more expensive than RBC due to high factor rates, which can significantly increase the total repayment amount. The quick access to funds and lenient qualification criteria often come at the cost of higher fees.
Key Differences:
- Repayment Flexibility: Revenue based funding offers more flexibility with payments fluctuating based on monthly revenue, while MCA repayments are tied to daily or weekly sales.
- Cost and Fees: Both options can be costly, but typically have higher fees due to daily or weekly repayment requirements and lower term than a business loan.
- Eligibility Requirements: RBC considers overall revenue, making it suitable for businesses with various income sources, whereas MCA is focused on businesses with high credit card sales.
Understanding these differences can help businesses choose the most suitable financing option based on their specific cash flow patterns and financial needs【33†source】【34†source】【35†source】【36†source】【37†source】.
Revenue Based Loans are more expensive than business loans.
Yes. No need to sugar coating it. You can’t get away with it. Product is here to stay no matter how costly. If it was a bad product how come everyone came in to the marketplace and become a lender from Amazon to Paypal to Square and to Shopify. When it’s profitable those with money will enter the market because they have the capital and cost constraints aren’t a factor for big firms like these guys. However, they make acceptance, awareness and normalization of the revenue based lending.
In the beginning, business cash advance were a luxury due to the fact that there were few merchant cash advance lenders.Then came awareness, education, market accept, and market saturation.
Back then rates where not dictated by the market. But now since the market has evolved, and once the word got out how profitable it was to be a lender, everyone became a lender. Then what happened, the saturation went to the next level is that it give new avenue to a new investment opportunity and an avenue to have easy access to capital. Risk level went up, although rates has gone down, not significant for the lower grade borrowers who have multiple “STACKED” MCA’s. Due to the excess supply of funds however, the better qualify borrowers have benefited from lower cost of capital or lower rate factor.
Why Rates so High for Revenue Based Financing?
Convenience! You pay more for same Coke at 7/11 than from grocery stores. You’re paying for the convenience. Revenue based financing is like paying for the convenience of having access to cash fast with very little requirements to get funded, repeatedly without any hassle of knowing whether you will get funded or not.
So, as a business owner you have the leverage your unearned income for cash today. Present value of money. Time value of money. Dollar today is worth more than a dollar tomorrow, as the saying goes.
If you don’t like your current lender, you always have options.
1- Not Borrow Again and Not Renew
2- Look for a different and better loans
3- Don’t borrow at all and pass up opportunity if that warrant the funding.
Prior to revenue based funding the only option was INVOICE FACTORING. Not only options weren’t available many products didn’t exist that allow business owners to have access to capital regardless of the cost. It’s all about something or nothing. Will it benefit you? Will it buy you time? Time is Money.
Therefore, revenue based financing must be included in your capital raising strategy if all else fails. It’s is technically not designed to be a long-term business funding solution. It’s supposed to be a bridge capital when and borrow when you truly need it. Or, if it benefits the business and it brings more that the cost of capital, plus all the tax benefit of the cost of capital or interest expense, therefore, it’s worth evaluating whether MCA as your only option is your only option. Were you turned down for Term loans, SBA, Bank loans etc…? if your option is only MCA, then make the best of it find the lowest, work with a reputable Revenue Based Finance Broker like Liberty Capital Group, Inc. a trusted loan broker since 2004.
Benefits of working with Liberty Capital.
Liberty Capital offers a practical solution for small business owners looking to manage costs, access tax capital through various funding sources, and maintain accessibility from a trusted business loan broker.
Business funding can be a complicated process, so you must not do it alone. Working with an business loan broker who knows how to package the best approval will only help get you the right financing.
While Business loans is essential form of funding source, so weigh these benefits against the potential long-term costs. By understanding the full range of financing options based on your company’s revenue, personal credit profiles, and financial standing, you can make informed decision.
Avoid the “bank hop”. Shopping when you don’t know who is an “A Credit” lender compare to B, or C credit lender. How would you know? Let the expert do the work for you so you can go back doing what you’re good at, running your business.
We are on your side, your best support for your business’s growth and financial health. Contact Liberty Capital today to explore the best business term loans for your business so you can expand and grow with a peace of mind.
Other Financing Programs Offered By Liberty Capital:
Liberty Capital offers a variety of financing programs to suit different needs, including:
- Lease-to-Own Programs: Allows businesses to eventually own the equipment after fulfilling lease terms.
- EQUIPMENT FINANCE AGREEMENT or EQUIPMENT LOAN: Traditional financing with fixed monthly payments and terms up to several years.
- Working Capital Loans: Short-term loans to cover operational costs or down payments on equipment.
- Seasonal Payment Plans: Customized payment schedules to match the seasonal revenue patterns of your business.
- Term Loans: Term loans allows you to have a predictable loan term to 3-5 years.
- Invoice Factoring: Capital upfront from your account receivable to cover operational costs or down payments on equipment.
- Commercial Loan: Including SBA 504, we are a commercial loan broker for 4+ unit commercial property needing commercial loans purchase, refi, ground up funding or condo conversation, bridge loans on commercial property, condos and apartments.
- Merchant Cash Advance: Most for unbankable type of borrowers. Pure based on purchase of future revenue. Revenue based loan. Revenue purchase agreement funding. Or, Convenience! You pay more for same Coke at 7/11 than from grocery stores. You’re paying for the convenience. Merchant cash advance is like paying for the convenience of having access to cash fast with very little requirements to get funded, repeatedly without any hassle of knowing whether you will get funded or not. So, as a business owner you have the leverage. IF you don’t like you current lender you always have options. Prior to Merchant cash advance there was no options. No only no options product didn’t exist.
How To Apply!
Liberty Capital is committed to helping small business owners acquire funding through revenue based capital they need to thrive. So, we make it simple for you to apply using our Simple Application
Join the thousands of businesses that have trusted Liberty Capital Group with their financing needs. Let us help you achieve your business goals and take your business to new heights. We have the highest approval rae.
What do you need to get approved?
To get a free quick no obligation revenue based funding analysis, we would need the following: but subject to additional info depending on the types of business funding, amount and your credit profile.
- ONLINE APPLICATION
- Last Years Tax returns
- Current financial statements
- Recent bank statements
We look forward to speaking with you. We look forward to working with you. Best of luck!