Revenue Sharing Loans

Revenue-sharing Loans

In this course, we describe and explain revenue-based loans including merchant cash advances. You'll learn how to determine when this type of financing is appropriate for your business.

4 Lessons

The Promise of Flexible Repayment

Unlike a term loan from a bank, merchant cash advances and revenue-share loans don’t have fixed repayment schedules. Rather, remittances or payments are a percentage of sales. That way, your payments will go down if sales are soft (though they’ll go up when times are good). Given the uncertainty endemic to young and small businesses, that kind of flexibility if valuable. It also has a price.

In this mini-course, I’ll introduce you to two forms of revenue-sharing loans: short-term merchant cash advances and long-term revenue-share loans. You’ll learn the potential advantages and pitfalls of each. By the end, you’ll be able to ask the questions that will allow you to make an informed choice as to whether and when either form is right for your business.

Nothing New Under the Sun

Although new securities laws and technologies have helped shape and spread the newest forms of revenue-share loans, they have a long history. Merchant cash advances, for instance, are a form of factoring – a financial transaction in which a business sells its accounts receivable at a discount. Factoring has been around for centuries. What is new is the emergence of payment processing companies such as PayPal, Square, Shopify, and others who have direct access to information regarding the credit card receivables generated by online merchants. Expensive, mail-based lockbox collection and processing has been replaced with automated, electronic transactions. As a consequence, even the smallest businesses have access to accounts receivable-based financing these days.

Pilot Your Own Ship

Not All Lenders are Good

Not all lenders are good, either.

The mechanisms of business are lubricated by trust. We’d like to think that lenders and investors won’t make financing available imprudently. By watching out for their own interests, we hope that they will – in effect – watch out for ours. Many – maybe even most – will. However, it’s prudent to be equipped to make your own informed choices. Not all financing that is offered is worth taking, and the right choice for you may be very sensitive to specific conditions. This course will help you know what to look for.