What is A Revenue Based Loan
When it comes to business financing, there are dozens of ways your company can obtain financing.
You can go the traditional route and apply for financing at your local bank, or you can access cash
quickly by using non-traditional lending methods.
Revenue based loans focuses on the latter.
With revenue based loans, your business is evaluated on the amount of deposits your company generates.
It takes into account the amount of revenue generated and the “healthiness” of those bank statements.
Next, your personal FICO score is run to give the underwriters a good idea of how you’ve paid your
expenses in the past.
In the end, an offer is made based on the revenues generated and the overall makeup of the credit profile.
What may come to a surprise to many business owners is the ability to secure financing regardless of the
personal credit score within a few days.
Though personal FICO scores are run, it has little bearing on the underwriters decision to offer a revenue based loan.
For example, hundreds of businesses have been funded who were generating cash flows each month even though the
business owners personal FICO was a 530. In several other instances, small business loans have been issued to business
owners who have had bankruptcies, tax liens, and judgments just 2 days after the submission.
Results like this make it obvious why business owners have switched their thought process on small business loans.
Even though business owners don’t have perfect credit by any means can still secure money to grow their small business.
However, there are a number of key factors businesses owners need to be aware of before they use a revenue based loan
for their business.
Without knowing some of these factors businesses can be denied, and left empty handed when it comes to acquiring financing.
What Are The Guidelines?
As you can probably imagine, the revenue based loan is not a fix all for a small business.
It’s used for businesses who believe they can take out a loan and turn a profit on that money quickly.
Instead of sinking time and energy into SBA loans and traditional methods of financing, revenue based loans are short term
financial vehicles for businesses who can ROI quickly.
1) Your business must have an established EIN and been operating for a minimum of 6 months
2) To qualify for a revenue based loan you’ll want to be generating at least $15,000 per month over the course of several months.
This let’s the underwriters know your bank deposits are consistent and reliable.
3) Though you can be a sole proprietorship and acquire financing, many lending institutions require you to have and EIN and not
work off your social. LLC’s and corporations are preferred.
4) You must generate a minimum of $100,000 per annum. This allows for natural ebbs and flows of deposits month over month.
5) You really should be depositing more than 15 deposits a month. For instance if you’re generating $20,000 a month but you’re
only making 3 deposits this is a sign of instability in monthly revenues due to the effect one deposit can have on that month.
ONE KEY THING TO REMEMBER IS THIS: REVENUE BASED LOANS ARE THE
QUICKEST TYPE OF FINANCING A SMALL BUSINESS OWNER CAN ACHIEVE
A revenue based loan is designed to be a short term loan.
Business owners need to be able to answer yes to the following question before they submit an application and get an approval for a revenue based loan…
Will you be able to generate a return on your investment for this short term loan?
If you’re not sure, or you’re asking yourself how can I do this so this makes sense…you’ve already killed the deal for yourself.
Business owners should have a plan and know exactly what they are going to do with the money and what their expected return on the money is.
Whether it’s a piece of equipment that will drive more sales, a new marketing funnel you want to put in place, or a new tuck so you can be more efficient,
you need to be able to use the money lent, and in turn generate more money on a monthly basis for your small business.