Demystifying Revenue-Based Finance

What is revenue-based finance? How does it work? This short blog should help clear things up.

Posted: July 11, 2022 by Kieran Darmody

Time to read: 3 mins


Revenue-based finance can be the most valuable and cost-effective funding option available to small businesses (SMEs). Unfortunately, many SMEs are unaware of the benefits or don’t understand how it works. An SME’s typical go-to is traditional forms of finance such as equity debt or term loans. While these are the most widely known forms of business finance, they may not necessarily be the most suitable options for the overall goals of the business.

 

What is Revenue-Based Finance?

Revenue-based finance is an alternative form of finance that allows small businesses to access funding based solely on their overall business revenue. Unlike traditional forms of finance like term loans, businesses don’t need to worry about scraping cash together in time for set repayment dates each month. They also don’t have the hassle of providing personal guarantees or assets to get the money they need to grow and thrive. Instead, the funding is provided based on the overall financial performance of their business.

 

How it Works

There are two ways to pay for revenue-based finance:

  1. Variable collection is when a business agrees to pay for the finance as a fixed percentage of their daily revenue.
  2. In a flat fee scenario, a business agrees to pay based on a fixed percentage of the revenue each month.

Payments for revenue-based finance are typically based on daily debit and credit card transactions and therefore align with a business’ cashflow. Since payments are a percentage of revenue, businesses will pay more during more lucrative months and therefore pay for their cash advance faster. Likewise, businesses will make lower payments for slower, less lucrative months. In some cases, the business may need to pay a minimum monthly fee agreed with their financial provider. Businesses can also pay for revenue-based finance by direct debit or through other forms of digital payment. There is a wide range of options depending on what works best for the business and its provider.

 

The Approval Process

The approval process for revenue finance differs significantly from how you would generally obtain traditional forms of funding. The application primarily takes place online and can be completed in a matter of minutes. Little documentation is needed, and applicants can receive a decision on their application within a matter of minutes, a stark contrast to the average four to six weeks it takes to be approved for a traditional business loan. Fintech financial providers like Liberis can review and approve applications faster since they use historical and projected revenue data to determine whether a business qualifies for funding. Of course, before a business can obtain finance, the standard affordability checks are carried out to make sure the business has enough cashflow to cover the costs.

 

Who Uses Revenue-Based Finance?

Revenue-based finance is excellent for e-commerce, Software as a service (SaaS) companies, subscription-based companies, retailers, restaurants, and businesses that thrive on seasonal performance. The way that payments are deducted from card payments or other digital transactions like mobile payments or bank transfers means that the business should not have any issues paying back their cash advance, given that they will always generate the revenue they need from each customer transaction.

 

Accessing Revenue-Based Finance

There are many ways to get revenue-based finance. Some alternative finance providers like peer 2 peer (P2P) lenders offer it directly through their own platform by connecting investors with business borrowers.

 

Other lenders offer it through an embedded finance provider like Liberis. By partnering with acquirers like WorldPay, Elavon, NETS and Barclaycard or through eCommerce platforms like Klarna, businesses can get access to hyper-personalised, pre-approved funding at a time that’s right for them. By calculating individual offers through a partner's existing customer dashboard, users can have offers in as little as 10 minutes, with just a few clicks.

 

In Short…

Whether a business is looking to renovate, buy stock or pay for marketing, revenue-based finance allows them to raise the funding they need faster without needing things like personal guarantees. They can then pay for the finance on a flexible schedule that aligns with the performance of their business. Best of all, it's not just online companies that can obtain this type of funding. Bars, restaurants, and retail stores are among the many that can get revenue-based finance through their existing relationships with their payment processors, eCommerce platforms and brokers.

 

Liberis partners with banks, marketplaces, software providers (ISVs), brokers and acquirers to provide revenue-based products to businesses that not only need it but deserve the opportunity to grow with the right funding.

 

Need Some Growth Funding?

We have a wide range of partners that businesses can go through to obtain revenue-based finance from Liberis including Barclaycard, Tide, WorldPay, NETS and Klarna to name a few. Get in touch to learn more.

 

Interested in Partnering?

If you are interested in partnering with Liberis to provide revenue-based finance to your small business customers, get in touch.

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