Revenue-Based Financing Companies: Comparison and Key Insights

How to Choose the Right Lending Partner for Your Business?

For any small business, financing is crucial to a company’s growth chart. Aligning the business goals with the right type of funding is where most small businesses struggle with. One of the financing options that most small businesses tend to opt for is revenue-based financing (RBF). There are many advantages with other funding options, too, but what works for revenue-based financing (royalty-based funding) is its non-dilutive and flexible repayment features.

However, as much as choosing the right funding is important, it is also vital that businesses choose the right lending partner to see them through this journey. That’s why, in this article, we will discuss RBF and compare a few popular revenue-based financing companies so that you can choose the best option for your business.

3 Key Takeaways 

Flexibility and Cash Flow Management: Revenue-based financing provides capital in exchange for a percentage of the company’s future revenue. Its repayment terms align with a business’s regular cash flow, which reduces financial burden during low revenue months.

Fast Access to Working Capital: Compared to traditional bank loans, most revenue-based financing companies tend to process applications faster, allowing businesses to get the funds they need within a short duration.

Multiple Financing Options: Online lenders like Biz2Credit, Square Capital and Shopify Capital provide tailored financing options designed to meet the unique needs of different businesses, no matter what industries they belong to.

What is Revenue-Based Financing (RBF)?

In layman’s terms, revenue-based financing is a type of alternative funding method which offers capital in exchange for a percentage of company’s gross revenue. Most traditional bank loans levy fixed monthly installments that may make it difficult for businesses with fluctuating monthly revenue to repay the loan during lean periods. So, the repayment is proportional to monthly income earned, which does not put a strain on a firm’s regular cash flow. It differs from equity financing too as it does not require borrowers to dilute their company’s equity. Rather, lenders receive a percentage of the business’s monthly revenue on an ongoing basis.

This financing option is often processed faster than traditional bank loans, making the required capital available within days. This is perfect for businesses with urgent capital needs. Another feature of RBF is that it does not require collateral to get the funding, making it easier for firms without significant assets to seek necessary funds. It is also less restrictive than traditional bank loans, which allow businesses with low credit scores or substantial assets to get funding without a lot of trouble.

What is a Revenue-Based Financing Company?

Revenue-based financing companies offer a unique financing solution that links repayment with a business’s monthly revenue. These lenders cater to different business needs and industries. Since these companies provide businesses with fast access to capital and flexible repayment options, it becomes vital for business owners to compare their offerings and find the best fit.

Why Would a Small Business Use RBF?

Most small businesses face fluctuating cash flows, making them not the best applicants for traditional loans with fixed monthly payments. That’s where revenue-based financing comes into play. It provides a financing solution to small business owners and entrepreneurs to get the funding required and repay it with a percentage of their future revenue. This flexible repayment structure allows businesses to pay only more during months with high revenue and less during slow periods. This flexibility also ensures that companies do not strain their cash flow and have steady working capital whenever required. This flexibility also makes it a far less risky option for both the lender and the borrower.

Benefits of Revenue-Based Funding

There are multiple advantages to opting for a revenue-based funding option. Let’s check a few of them:

• Flexibility in Repayment: The major benefit of opting for RBF is its flexible repayment structure. Since there is no fixed repayment amount, it becomes easier for businesses to repay the loan even during those periods when the income is low.

• No Equity Dilution: Unlike equity financing, RBF does not require business owners to give up any share of their company. This feature makes it popular with entrepreneurs wanting to retain complete business control.

• Fast Access to Working Capital: Revenue-based financing companies often provide a quick application process. This allows small businesses to receive funding typically within 24-48 hours, making it a good choice for companies needing capital urgently.

• Lower Cost of Capital: RBF generally has a lower capital cost than traditional bank loans. This makes this type of financing solution cost-effective for many businesses.

Currently, Biz2Credit stands out in the revenue-based financing sector. This is mostly due to its competitive offerings, lower cost of capital, and fast application processing. Applicants can pre-qualify for the financing within 60 seconds to get an initial estimate of how much principal amount could be provided. All these features make Biz2Credit a go-to lending partner for businesses looking for flexible funding options.

How Revenue-Based Financing Works

Here is a quick outline of how the RBF process works:

1. Application: Application for the funding solution starts with businesses submitting documentation on their monthly revenue, credit score, and overall financial health.

1. Approval: Once the lender thoroughly assesses the documents, an initial estimate or amount is offered. If the applicant agrees to the amount, submits all the final paperwork, and signs the agreement, the agreed-upon funding amount is disbursed.

1. Repayment: As RBF repayments are made as a percentage of monthly revenue, it allows businesses the flexibility to pay higher repayment amounts during months with higher revenue, and in months with lower income, they pay a lower repayment amount.

To understand more about Revenue-Based Financing, read How Does Revenue-Based Financing Work

Comparing Top Revenue-Based Financing Companies

As mentioned above, selecting the proper funding for your business is not enough. It is absolutely crucial to choose the right lending partner, too. Businesses must compare key elements such as funding amount, minimum credit score requirements, repayment terms, and other additional fees.

Let’s look at some of the best revenue-based financing companies and check out what they offer:

1. Square Capital

• Funding Amount: Up to $350,000

• Minimum Credit Score: Not specified, but businesses must use Square for payment processing.

• Repayment Terms: Automatic deductions from daily sales make it easy to manage payments and align them with cash flow. Borrowers have to pay their minimum amount every 60 days.

2. Kapitus 

• Funding Amount: Up to $5 million

• Minimum Credit Score: 650 FICO score

• Repayment Terms: Based on a percentage of monthly revenue, Kapitus offers flexible payment frequency. Payments are conveniently debited from the borrower’s bank based on an agreed-upon percentage of the business’s revenue daily, weekly, or monthly.

3. Credibly 

• Funding Amount: Up to $600,000

• Minimum Credit Score: 500+ FICO score

• Repayment Terms: Repayments vary as they are linked to monthly revenue.

4. Shopify Capital 

• Funding Amount: Up to $2 million

• Minimum Credit Score: Not specified

• Repayment Terms: Loan amount should be repaid within 18 months.

5. PayPal Working Capital 

• Funding Amount: Up to $200,000

• Minimum Credit Score: Not stated

• Repayment Terms: The applicant must make a minimum repayment every 90 days.

6. Biz2Credit 

• Funding Amount: Up to $6 million

• Minimum Credit Score: 575+ FICO score

• Repayment Terms: Biz2Credit charges a percentage of monthly revenue.

Conclusion

For small businesses and startups looking for a flexible funding option to balance their fluctuating monthly income and fuel their business growth, revenue-based financing is an apt solution as it eases the burden on fixed monthly payments. Today’s funding market has plenty of loan providers with specific financial products customized to meet the unique needs of businesses from different industries. The current top providers are listed above, with Biz2Credit leading the way by being customer-focused and offering more affordable terms that enable enterprises to focus on their business goals. It is important that before applying for any business funding, businesses compare these providers and understand what they have to offer and whether the offerings suit them or not.

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