SMB Owners Praise Revenue-Based Financing

Revenue-based financing (RBF) is often seen by small business owners as a financing model that's too expensive, while others mistakenly equate it to typically irreputable payday loans for small businesses. The previously held view of revenue-based funding as an opaque and costly financing strategy has evolved, however. Today, small business owners are praising RBF as a flexible form of financing that carries little default risk and can help small businesses with growth capital or smooth out their cash flows.

How RBF Works for Small Businesses

Revenue-based financing is not a loan. It's a form of financing in which a lender provides a lump sum of cash in exchange for a fixed percentage of future sales plus a fee paid on a periodic basis. Unlike an SBA 7(a) loan or a traditional term loan, revenue-based business funding may not require an excellent credit score. Instead, lenders consider your sales history as one of main qualifications for approval.

While revenue-based financing is typically more expensive than most traditional forms of financing, it does offer distinct benefits. Those include:

• Eliminating the need for venture capital: Revenue-based financing is a form of financing that can eliminate the need for venture capital. Business owners can get the capital they need without having to give up ownership in their businesses.

• Avoiding austere borrowing requirements: Revenue-based financing typically doesn't require the high credit scores that some other forms of financing, such as SBA 7(a) loans, do.

• Flexible payment plans: With a revenue-based financing agreement, business owners are charged a fixed percentage of their future sales until the contract is fully repaid. While the fixed percentage stays the same throughout the life of the contract, the payments themselves will fluctuate as your sales fluctuate.

• Quick funding times: The application processes for traditional forms of financing can often be long, complex, and carry strict requirements. SBA 7(a) loans usually require small business owners to write business plans. Applications for revenue-based financing are often much quicker, and, in some cases, your business can get the funding very quickly.

There are many revenue based financing firms, but with revenue-based financing from Biz2Credit, you may be able to receive up to $5 million in financing, flexible repayment terms, and you can find out if you pre-qualify for financing in just minutes. Biz2Credit has knowledgeable funding specialists ready to speak about a structured revenue-based financing deal that works for your specific needs.

What do Actual Small Business Owners Say?

One of the unique features of RBF is that there's little chance of default because you are repaying the money you received through a percentage of your future revenue, rather than a fixed payment plus interest as you would with a term loan. The advantage is that if your business has a slow sales period or a negative cash flow month, the payments you make adjust accordingly until the amount is paid off.

Below are some of their stories.

How Can Revenue-Based Financing Help Accelerate Small Business Growth?

Small business owners that Biz2Credit spoke to praised the general benefits of using revenue-based financing. All of them agreed that if used strategically, revenue-based financing can help fund critical growth periods and position your small business to increase gross revenue.

Firdaus Syazwani, founder of personal finance company Dollar Bureau, said that without it, his company would never have been able to take the next step in its growth.

“Revenue-based financing was instrumental when I needed to scale operations for my online ventures,” Syazwani said. “This form of financing allowed my business to thrive by aligning funding with our cash flow, ensuring we could manage repayments during fluctuating sales periods without stifling our operational capabilities.

“In one instance, we used revenue-based financing to ramp up our marketing efforts ahead of a major product launch. The upfront capital enabled us to maximize our reach and refine our targeting strategies, resulting in a significant increase in customer acquisition and a substantial boost in revenue. This wouldn't have been possible with traditional loans, as their fixed repayment structures are less adaptable to the ebb and flow of a digital business's revenue streams.”

How Can Revenue-Based Financing Help Increase Business Efficiency?

If you need to quickly improve efficiency or enhance customer delivery, revenue-based financing can provide quick access to essential funds along with a flexible repayment plan. This was the case with Samuel Charmetant, founder of ArtMajeur, an online art gallery and sales platform.

Charmetant told Biz2Credit that his company used it to make upgrades to his company's warehouse dispatch system, which significantly decreased the delivery times of art to his customers.

“Thanks to revenue-based financing, we invested in a streamlined fulfillment solution that cut processing times by nearly 40%,” he said. “That change directly improved our cash flow, because we could invoice customers faster and clear out inventory before storage costs piled up. The part I like most about it is how the change didn't just boost our daily operations, it also gave our sales team more confidence to promise tighter delivery timelines.”

How Can Revenue-Based Financing Help Launch New Products?

While SaaS companies and other tech businesses were among the first to use revenue-based financing, it's become a form of financing that can be used by any type of small business. If you need capital to quickly launch a new product or platform and want to avoid the rigid repayment terms of a traditional loan, revenue-based financing offers flexible repayment terms while providing you with the funding you need to grow your business.

Amra Beganovich, founder of retail online shop Colorful Socks, told Biz2Credit how this financing helped her collaborate with artists to launch a new brand.

“Revenue-based financing allowed me to fund a limited-edition artist collaboration without draining our regular operating budget,” said Beganovich. “Since payment terms adjusted with sales, I could take a risk on a capsule collection that might not have immediate returns. It gave us the freedom to test bold designs that eventually became bestsellers without betting the entire brand on one idea.

“Revenue-based financing helped me rethink packaging and supply chain partners on short notice. After a key supplier closed, I had to secure a new production run with faster timelines and higher upfront costs. Having access to working capital right when it mattered allowed me to invest in quality without diluting the brand's core values.”

How Can Revenue-Based Financing Help Increase Profitability?

While many people focus solely on the cost of revenue-based financing, it can actually be a flexible financing tool to increase your business' profits when used carefully. Thomas Franklin, CEO of crypto currency startup Swapped, told Biz2Credit that an RBF contract allowed his business to fund new marketing campaigns that boosted his profits.

“We pulled $180,000 using [revenue-based financing] at a moment when 40% of our customer onboarding pipeline was stuck behind delayed marketing launches,” said Franklin. “The flexible repayment model, pegged to daily revenue, meant that we could stay aggressive without risking cash flow paralysis in bad weeks. Instead of laying off two developers or pausing product sprints, we kept momentum at full tilt, and six months later, that same cohort produced $550,000 in annual recurring revenue (ARR).”

Why Revenue-Based Financing May Deserve a Second Look

Many small business owners dismiss revenue-based financing because of its cost. Of all the financing options available to you, however, revenue-based financing can be a powerful tool to increase both profits and efficiency without long term fixed monthly payments required by bank loans or lines of credit.

Flexibility is the Greatest Asset

If you're looking for a flexible way to fund growth without the red tape, this type of funding may be worth a closer look. It might be the financing solution your business needs to grow your monthly revenue and find long-term success.