How Revenue-Based Business Loans Drive Success
Did you know securing revenue-based financing is one of the easiest ways to grow your business? Allied Market Research estimates the global revenue-based financing market will hit $42,349.44 million by 2027, expanding at a CAGR of 61.8% between 2020 and 2027. Such a high estimated growth rate is within reason; these loans have given countless businesses a chance to thrive.
Typically, entrepreneurs leverage revenue-based financing to raise capital for their companies, promising to repay the money with a certain percentage of revenues earned. Undeniably, this type of funding is geared toward business growth.
If you want to understand how revenue-based loans can enable you to expand your enterprise and bring in more returns, we’ve written this piece just for you. Read on.
- They Provide Easy Access to Capital
If you want to avoid the lengthy application processes associated with traditional financing, revenue-based business loans can be a great source of capital. Usually, revenue-based financing providers only seek your firm’s revenue potential.
So they might ask for your bank statements for the past three months. However, they don’t care about your business plan or other aspects of your company. Therefore, your loan may be approved quicker than a typical bank loan.
Bank loans may take a few weeks or even months to be approved. However, many potential lenders can approve revenue-based business loans within 48 hours. Even better, applying for the funding takes 10-15 minutes because most creditors allow you to do it online.
Of course, you must consider your needs before taking that big step. For example, evaluating your business goals enables you to pick the right product with an ideal repayment structure.
You should also determine the exact amount of money you need to borrow. Develop an explicit plan to use the financing to grow your brand. Otherwise, you might spend the loan on personal needs and wallow in regret later.
- They Boost Your Purchasing Power
Any experienced entrepreneur can agree that investing in high-quality equipment should be one of your top objectives. Eager to know why? To begin with, it boosts productivity by ensuring your team has the necessary tools to perform their responsibilities.
Plus, being asset-rich provides more stability, which enables you to explore new, potentially more lucrative business opportunities. As a result, you can stay competitive as you endeavor to provide better services than your counterparts.
But here’s the thing. For most companies, making big purchases while catering to other business needs can be challenging. While some lack the money, others fear taking the risk as it could significantly affect their finances.
Fortunately, these problems will be the least of your worries after acquiring a revenue-based business loan. You can use the funds to acquire valuable assets for your firm or expand your enterprise, depending on your goals.
If, for instance, your company needs more equipment, remember that buying isn’t your only option. You can hire or lease it, especially if your business often requires you to update the tools.
That allows you to incur lower upfront costs. And the leasing company may maintain the equipment for you, meaning you might not even spend the entire revenue-based business loan all at once.
- Their Repayment Schedules are Flexible
Revenue-based business loans come with flexible repayment terms. This allows you to avoid making fixed payments that could be too high during specific slow weeks or months and potentially go bankrupt. You may increase or decrease your payments based on your revenue at a given time.
Revenue-based financing’s flexible remittance is among the reasons entrepreneurs prefer it to other types of loans. The truth is that most credit card companies and conventional banks don’t care if you bring in any revenue. They will still demand that you repay a fixed amount every month. Failure to do that may:
- Prompt them to seize your business property
- Affect your eligibility for another business loan
- Damage your credit score
Thankfully, revenue-based business loan lenders are deeply invested in your success. They understand that your capability to repay them rides on your profitability. And it could take a few months to bring in any revenue. Nevertheless, they can be patient, enabling you to forge strong business partnerships.
- You’ll Retain Control of Your Business
Revenue-based loans are tailored towards success since you’ll still wholly own and control your business after receiving the funding. Therefore, you’ll be responsible for making the company’s major leadership decisions, including:
- How to spend the revenue-based financing
- When to recruit and fire personnel
- The legal structure of your company
- Choosing your company’s suppliers for equipment
- Selecting the most convenient distribution channels for your products
Because all these choices affect your company’s finances, you can decide what’s best for your company.
Unlike revenue-based loans, many other financing options don’t give you the freedom to own and manage your firm. For instance, equity investors demand a stake in your firm to provide the funding you need to grow or operate it. This could force you to step back as they make critical business decisions.
Unfortunately, these angel investors and capitalists might not grasp your vision, business dream, or objectives. Instead of driving your company towards growth, they could stunt it over time.
- They Don’t Require Collateral
Usually, revenue-based loan lenders don’t ask for any collateral to fund your company. This means it’s a less risky financing option than traditional loans since you won’t put your business or personal assets like cars on the line.
Because revenue-based loans are collateral-free, you can quickly access the financing you require without any assets. This is more convenient for startup founders with profitable ideas yet to execute.
Remember that revenue-based loans may have higher interest rates than collateral loans.
Bottom Line
Now that you know how a revenue-based loan can fuel your business’ growth, you may consider it when you need a cash injection to help you grow. But is it the best financing option for you? You’re eligible for the funding if yours is a high-growth company like a tech startup. Revenue-based business loans are also ideal for enterprises with cash-flow problems despite making high returns.
Once you acquire revenue-based financing, you’ll have many ways to spend it, depending on your business goals. For example, you can start another business or expand your current one.
On top of that, hiring new staff to help you run your company or pay business expenses is a great way to spend your loan. However, if you want to spend the money, make sure the repayment plan suits your firm to avoid clashing with your lender.
