Revenue-based financing (RBF) is a type of financing where a business receives capital in exchange for a percentage of its estimated projected future receipts. The business agrees to remit an estimated percentage of its revenue until a certain amount is satisfied. It's a popular option for small and medium sized businesses that may have less than perfect credit history or do not have traditional collateral to secure loans.
How is the Remittance Structure Determined
The remittance structure for revenue-based financing is determined based on an estimated percentage of the borrower's monthly revenue. This estimated percentage is agreed upon between the Seller and the Purchaser at the time of the financing agreement. The remittance amount is then calculated based on the Seller's projected monthly revenue and paid to the Purchaser until the financing is fully satisfied. The specific details of the remittance structure can vary depending on the terms of the financing agreement and the preferences of the Purchaser and Seller.
Initially, you must provide your signed and dated application and most recent three-months business bank statements, four months for businesses located in the State of California or New York. Have your State or Federal photo ID and voided business check available, as these will be required prior to an agreement being sent.
Additional stipulations may be required such as proof of ownership, business registration, proof of location, tax documents, merchant credit card statements, profit and loss statement, work in progress report, and account receivables.
Is There an Early Payoff Penalty?
There are no prepayment penalties on Quick Fix Capital revenue-based financing products.
How is Revenue-Based Financing Different than Traditional Credit Products?
Revenue-based financing differs from traditional credit products in several ways. Here are some of the main differences:
Remittance Structure: In traditional credit products, such as loans or lines of credit, the borrower is required to make regular fixed payments of principal and interest. In contrast, revenue-based financing involves a remittance structure based on an estimated percentage of the business revenue. The Seller pays an estimated percentage of their revenue until the financing has been satisfied.
Collateral and Personal Guarantees: Traditional credit products often require collateral, such as real estate or inventory, to secure the loan. Additionally, personal guarantees from the business owners may be necessary. Revenue-based financing generally does not require traditional collateral or personal guarantees, as the remittances are tied to performance; the revenue generated by the business.
Credit History and Financials: Traditional credit products heavily rely on the borrower's credit history, financial statements, and other financial metrics to assess creditworthiness. Revenue-based financing is more focused on the revenue stream of the business and the potential for future growth. Businesses with limited credit history may find it easier to qualify for revenue-based financing.
Use of Funds: Traditional credit products generally do not impose restrictions on how the borrowed funds can be used, although specific loan agreements may include certain restrictions. Revenue-based financing, on the other hand, may have specific restrictions on how the funds can be used. Quick Fix Capital requires that the funds be used for business-related purposes or growth initiatives.
Risk and Return: Traditional credit products provide lenders with a fixed interest rate, regardless of the borrower's performance. In revenue-based financing, Purchasers assume a higher level of risk as the remittances are tied to the business's revenue. If the business performs well, the Purchaser receives a higher return. However, if the business struggles or generates lower revenue, the return may be lower than anticipated.
Flexibility: Revenue-based financing offers greater flexibility compared to traditional credit products. The terms can be tailored to the specific needs of the business, allowing for a more dynamic and responsive financing solution. This flexibility can be beneficial for businesses with fluctuating revenue patterns.
What is a Renewal?
A revenue-based finance renewal refers to the process of extending or renewing a revenue-based financing agreement.
When a revenue-based financing agreement is up for renewal, it means that the initial term of the agreement is typically 50% satisfied or coming to an end, and both the business and the Purchaser have the option to extend or renegotiate the terms of the financing arrangement in exchange for additional capital. The renewal process typically involves assessing the performance of the company, reviewing the financial projections, remittance history, and determining whether both parties want to continue the finance relationship.
During the renewal, adjustments may be made to the terms of the revenue-based financing agreement. This can include changes to the remittance percentage, the total amount, or other terms based on the business's financial performance.
What are Common Uses of Revenue-Based Financing?
Revenue-based financing (RBF) can be used for various purposes depending on the needs and goals of the business. Here are some common uses of RBF:
Working Capital: RBF can provide businesses with the necessary working capital to cover day-to-day operational expenses, such as inventory purchases, payroll, rent, marketing, and other overhead costs. It can help smooth out cash flow fluctuations and ensure ongoing business operations.
Growth and Expansion: Many businesses seek RBF to fuel their growth and expansion plans. The funds can be used to invest in marketing campaigns, hire additional staff, expand into new markets or locations, launch new product lines, invest in research and development, or upgrade equipment and technology. RBF can provide the capital needed to seize growth opportunities and scale the business.
Product Development: Businesses focused on developing new products or services often require financing for research, prototyping, testing, and bringing their ideas to market. RBF can be used to finance these product development efforts, including costs associated with design, manufacturing, intellectual property protection, and initial marketing.
Marketing and Advertising: Effective marketing and advertising campaigns are crucial for attracting customers and growing revenue. RBF can be used to fund marketing initiatives, such as digital advertising, content creation, social media marketing, search engine optimization, or traditional advertising channels. It allows businesses to invest in their marketing efforts to increase brand awareness, generate leads, and drive sales.
Inventory and Supply Chain Management: Retailers and businesses operating in the e-commerce sector often require funds to manage their inventory and supply chain effectively. RBF can be used to finance inventory purchases, negotiate better supplier terms, optimize logistics and distribution, and improve inventory management systems. It helps businesses maintain adequate stock levels and meet customer demand.
It's important to note that the specific use of revenue-based financing will depend on the unique needs and circumstances of each business. The flexibility of RBF allows businesses to utilize the funds in a way that aligns with their growth strategies and operational requirements.
Do You Offer a Payment Portal?
Yes. Our portal allows businesses to track their remittance history, see their balance, scheduled remittances and application history.