Using Revenue Loans for Your Business
If you’ve struggled to get a small business loan, or need a quick infusion of cash, you may want to look at revenue loans. There are many situations in which your company can benefit from the advantages offered by this alternative lending practice.
The requirements imposed by a traditional lender can seem somewhat arbitrary. If you are realizing some early success in your business venture but don’t yet have the history of returns that may be necessary for a bank to even consider your loan, you might find yourself extremely frustrated with the inability to fund your success. If you can show proof of your success and evidence that you can repay the loan, that might be all you need to qualify for most revenue loans.
This unconventional loan is actually quite common, and works by offering the lender a stake in your success. Repayment is based on the revenue of the business, which is a perfect solution if you need to shore up your inventory before a busy shopping season or if you’re a tour company with a huge contract and need to invest in some infrastructure to prepare for it. The lender takes a fixed percentage of your revenue until the loan is paid off. This means that the more successful you are, the sooner you will be able to pay it back. If you go through a lean period, you won’t be struggling to make loan payments, you’ll still just be paying the same percentage.
If you are a business with extremely tight profit margins, revenue loans might not be for you. The higher your margin, the better your ability to repay while investing back into your business at the same time. For seasonal businesses who go through lean months and fat months, revenue financing can be a great way to create improvements in your product or improve your inventory during the off-season.
Other examples of this kind of profit-sharing loan can be found in the movie or publishing industries, where investors, publishers, and even actors and authors are given a percentage of the profits. In the small business world, most of these types of loans will have a fixed amount that they expect back, over and beyond their initial investment, which makes them a bit different than other types of profit-sharing ventures.
If your problem is just a short-term cash flow issue, a revenue loan may be the answer. It’s a terrific way to get fast, short-term financing to help grow your small business.