Revenue Based Financing: What is it and how can it Help Grow Your Business?

Extra financing a common problem for small businesses. Maybe you need to hire an employee or you require additional equipment to manage incoming orders. Whatever the case, you need capital to keep the business not just running but growing too. There is the traditional bank loan, but you’re not sure you’ll qualify. Maybe your application was rejected. Now you’re wondering what alternatives you have. If you’re looking for alternative financing options for small business, then check out these choices. One of them may be the right fit for your business.

Check Out a Merchant Cash Advance

The first alternative financing option to consider is a merchant cash advance, or MCA. This is different from a loan, because the lender looks at your future sales. They examine your past credit card sales to determine trends in the business. They use that information to estimate your likely future sales. Then they make you an offer for a cash advance. The MCA offers more flexibility than a traditional business loan, which makes it more attractive to small businesses. Your payments can fluctuate with your actual sales. If you do more credit card sales in a month, you’ll pay your advance back faster. If you have a bad month, your payment will be smaller, which can take the pressure off your business.

Think about a Line of Credit or Credit Card

A line of credit or business credit card are flexible options. These financing solutions are known as revolving credit. That means you can use them, in full or in part, to fund pretty much whatever your business needs at the moment. You can then pay them back as possible. As you pay down the line of credit or credit card, the funds become available for you to use again. This could be a great solution for a business with ongoing credit needs or one with some small cash flow issues.

Consider a Microloan

If you only need a small amount of money, you may be turned down for a business loan through the bank. That’s because institutional lenders tend to make big loans. They’re more lucrative for the lender. One option you have is a microloan. Microloans are typically offered by online lenders or other businesses, not big institutions, so do your research and choose a lender that works for you.

Look at Peer-to-Peer Lending

Yet another option you have is peer-to-peer lending. This could be a loan from a colleague or it might be run through a P2P lending platform. In the business world, there might be business-to-business, or B2B, lenders as well. These lenders can typically make you a better offer than an institution, and they may be more willing to finance smaller loan needs. You can usually find them online.

You Have Plenty of Options

As you can see, there are plenty of financing options available for small business. If you’ve been turned down for that bank loan, don’t fret. You can still find the funding you need. Is a merchant cash advance the right solution for you? Get in touch with the experts, and get the funds you need today.

What is a business line of credit?

A business line of credit (LOC) is designed to meet the short-term financing needs of businesses. Basically, it is a revolving sum of money lent to a business owner. The borrower pays interest on the borrowed amount while the interest rate may be at a fixed or variable rate, depending on the borrower’s financial state. LOC is a type of debt financing, which is offered by traditional financial institutions in Canada. A business line of credit is often referred to as a “corporate line of credit”. As a debt instrument, they are both the same.LOC is very much like a credit card for your business. The business owner will be given a pre-approved credit amount from which he can draw capital as needed. Once the funds are used, the borrower will need to repay the amount including the interest over the repayment term as agreed. A business line of credit is one of the many options to fund your business or to get funds for a new business. It gives access to affordable credit if the borrower qualifies. The LOC provides ready cash flow, that could help solve the liquidity problems that small businesses tend to suffer the most.

What is a small business line of credit?

Lending providers offer a small business line of credits to small-sized businesses with different combinations of rates and qualifications. These may include the following:  

• An unsecured line of credit (up to $50,000)
• Secured credit (up to $1,250,000)
• Floating interest rates
• Business insurance
• Shorter approval/processing times
• Low monthly fees

A small line of credit under $300,000 can be approved online. For small business owners, a line of credit is one of the easiest ways to secure cash flow for their business operations. The application for a small business line of credit is typically short, and approval can be granted within one business day.

How to get a line of credit for your business?

Banks in Canada have a variety of LOC products for small and mid-sized businesses. You should consider applying for a business line of credit at a bank you’re already registered to. Make sure to apply for a line of credit ahead of time as, unlike loans, it can take up to a month to get approved. In order to apply for a line of credit, you should open a business bank account. Below is a list of documents that you would need to provide for your LOC application:

• Two pieces of government-issued IDs
• Proof of income
• Business financial statements, including income, expenses, assets, and liabilities
• Other personal- and business-specific information such as an address, license number (if applicable), and how long you’ve been in business

How to get approved for a business line of credit?

Whether or not your line of credit is approved depends on your credit score and your business qualifications. The higher your credit score and the more stable your business income, the more likely it is that you will be approved for a line of credit, and the larger it will be. It is very important to have a good credit score and to keep your business financial documents in order. If a bank is unable to adequately assess your business potential, it will lower the chance of receiving a line of credit. With a private lender, things are a bit easier as the lender may adopt different criteria and qualifications to advance the line of credit. Also, private lenders are more open to lending to businesses with lower credit scores. Remember, when looking for a small business loan line of credit, make sure to evaluate several options. The majority of small businesses prefer to choose private lenders as they are able to receive more flexible offers. Check out how merchant cash advance works to see if your business qualifies.

Why is a business line of credit better than a loan?

A business loan is typically obtained and disbursed only for a specific purpose. It is meant to provide access to capital for a one-time, major financial expenditure. Therefore, to manage your operating cash flow, you will have to apply for multiple business loans – each of which will negatively affect your credit score.However, a business line of credit allows you to improve your credit score. You only borrow the money you need and pay interest based on that amount. A business LOC allows for greater financial planning and resolves cash flow problems that small businesses often experience.

Why you may be denied a line of credit?

There are a number of reasons why you may be denied a business LOC. Most likely, your bad credit score will lead to a refusal, but that is not the only reason. The line of credit may be refused for a number of reasons, including:

• Purpose of LOC does not meet the required criteria
• Your industry is too risky
• The commercial bureau reports negative performance
• Business revenues indicate insufficient ability to handle monthly payments

Having a low credit score doesn't mean you can't take any type of loan. Check out some ways to get a business loan with a bad credit score.

Approaching a private lender for a small line of credit

If you require a moderate-sized line of credit, it is worth approaching a private lender. A small lender will not require as many documents as the bank, and the approval process will be faster as well. Also, private lenders accept applications for LOCs online and you can get request a quote online. Private lenders will help you understand why your line of credit has been denied by the bank and can provide the necessary funding in a shorter time with less hassle and stress and treated as bad credit debt help. If you are interested in an alternative solution made for small businesses, talk to one of our experts today for the best business cash advance loans.

Businesses need a robust cash flow to sustain their operations and generate profits. At times they may need to borrow funds to acquire resources, maintain operations, or grow. Unfortunately, various factors can adversely affect a business's ability to borrow from traditional financial institutions. These factors include having a poor credit history or insufficient credit history, missed or late payments, high debt-to-service ratio, bankruptcy, records of default, or simply being a relatively new business.However, there are many funding solutions available for Small Businesses that don’t fit the bank or credit Union model.These options are:

1. Merchant Cash Advance

A merchant cash advance is a financing option that offers businesses a lump sum cash payment in exchange for a percentage of their future credit card or debit card sales. This type of financing is best suited for businesses that require quick cash and have a high volume of credit or debit card sales.The primary advantage of a merchant cash advance is the speed and ease of accessing immediate cash funding. The process typically takes only a few days, and the funds become available within a short period.Business owners should take in account that although merchant cash advance is a convenient cash flow instrument and allows you to get funding within a few days, it may come with higher fees and interest rates due to their quick access to cash.

2. Invoice Factoring or Cheque Factoring

Invoice factoring, also known as cheque factoring, is a financing option that enables businesses to utilize their outstanding invoices in exchange for a cash advance that is immediately available. The lender collects payment from the business's customers and pays the business the remaining balance minus the financing cost. This type of financing is ideal for businesses with bad credit history since their ability to borrow is based on the creditworthiness of their invoice customers rather than the borrower. Businesses with long-term contracts, high-value invoices, or those needing cash to immediately purchase materials to fulfill high-value invoices should consider this type of bridge financing.Manufacturing, construction, transportation, and wholesale/distribution are businesses that can benefit from this type of financing to meet their immediate cash flow needs.The main advantage of invoice factoring is that the lender typically assumes responsibility for collecting payment from the invoice customers or payers. This can free up valuable time and resources for the business to focus on other aspects of their operations. Furthermore, businesses with long payment cycles, delayed payments, or long-term contracts that involve milestone payments can obtain the necessary cash to expand or continue operating their businesses immediately.Similarly to merchant cash advance companies, factoring lenders may charge a high fee for assuming the risk of collecting on the invoice and the time gap until the invoice is due for payment.

3. B-Lender Loans

B-Lender loans are non-traditional financing options provided by private equity firms or online lenders. These lenders are often willing to lend to businesses with bad credit or little credit history for various purposes. They understand the complexity and cash flow requirements of small businesses and work with them regularly. This type of loan comes in various sizes and forms, depending on the business needs and the business entity's qualifications and lending risks.B-Lender loans are a great financing option for start-ups, small businesses, seasonal revenue businesses, or those in urgent need of short-term financing. Traditional lenders typically require creditworthiness, good credit history, and collateral, but B-Lenders often have significantly more flexibility. These lenders are specialized in dealing with the complexity of newer and smaller businesses and can provide loans with less stringent due diligence processes and quicker turnaround times to meet business needs.However, it is highly advisable for borrowers to understand the terms of the loan and carefully review the terms and conditions before accepting them. B-Lender loans are less standardized and customizable and can vary significantly in terms such as repayment, interest, default events, settlement, and legal jurisdiction. Businesses should also be aware that B-Lender loans may come with higher fees and interest rates due to their higher risk tolerance.B-Lender loans can be a great option for businesses that are just starting or facing challenges with traditional lenders. These loans can provide flexibility, speed, and customized financing solutions to meet their specific needs. However, careful consideration of the terms and conditions and full understanding of the associated costs are crucial before committing to this type of financing.

4. Instant Payday Loans

Instant payday loans are short-term loans that can be used to cover unexpected expenses or emergencies. They are easy to obtain and are often offered by online lenders. Borrowers may receive access to immediate relief cash within hours, thanks to the quick and standardized approval process of the lenders that provide these loans.Instant payday loans are suitable for individuals with emergency cash needs or who need access to immediate cash to cover unexpected expenses. Some typical uses for instant payday loans include medical bills, car repair bills, and home repair bills. These loans can offer immediate cash relief to ensure a person has the cash to cover daily living needs to continue working and earning money.Payday loans can be useful for individuals who have low credit scores or limited credit history and may not qualify for traditional loans.Borrowers should know that instant payday loans typically have high interest rates and fees for their ease of access and quick approval process. The repayment period is often within two to four weeks. As these loans can be accessed quickly and easily with minimal documentation requirements, these could be beneficial for individuals who need immediate cash and don't mind the associated fees.In summary, there are various types of non-traditional lending and financial services available to businesses and consumers in Canada. These services can provide cash relief for a variety of situations, depending on the borrower's needs and qualifications.Merchant cash loans are suitable for businesses with high credit or debit card transaction volume and immediate cash needs. Invoice or cheque factoring can benefit businesses with valuable invoices with longer repayment terms. B-Lender loans are a great option for start-ups or small businesses with an immediate cash need to expand or maintain operations. Instant payday loans can provide relief for individuals with unexpected or emergency cash needs.Overall, non-traditional lending and financial services can provide valuable solutions for businesses and consumers with unique financial needs. It is also vital to approach them with caution and careful consideration of the associated costs and repayment terms. With the right lender and loan terms, these financial services can help businesses and individuals overcome cash flow challenges and achieve their financial goals.