Since 2009 banks have pretty much cut off credit to small businesses. Sure they are lending but the amount of declined applicants is staggering. 85-90% of all small business loan applicants are rejected. Either due to time in business, credit, or capital needs. Yes, if you’re a small business that needs only $10,000 – $30,000 most likely your bank will not approve the funding. The cost to underwrite and service a small business loan like that is a money losing proposition for banks. Revenue based business loans is a relatively new product that is now offered by private alternative lending banks.
Revenue Based Business Loans
Revenue based business loans are an alternative to a bank loan and for those business owners that cannot get a bank loan. These are short term loans that are pretty hassle free to obtain relative to traditional bank loans. The requirements of a business to obtain/apply for this type of funding is a one page application, 4-6 months of business bank statements and 3-4 months of merchant processing statements. Accepting credit cards though is not a requirement. With this information alternative private lenders, through their proprietary underwriting, will ascertain if the business is worthy of a loan and if so how much and for how long. This process takes only 24 hours making this an extremely fast process. No more waiting 3 to 4 weeks to find out you are approved….or declined. If approved, you can receive your capital in less than a week making the entire process 5-7 days long. Once you’ve had one of these revenue based business loans you can refinance in 24-48 hours. Its all about building a relationship with a lender. In addition the the documents needed above a business owner will also submit, upon approval, their driver’s license, copy of a lease or mortgage statement (if a home based business) a voided check and proof of ownership.
Rates and Terms of Revenue Based Business Loans
The rates of these loans are considerably higher and the repayment terms considerably shorter. Where a traditional bank loan may be at a rate of 6-10% over 3-5 years, revenue based loans are at 19% to 48% over only 3 to 12 months. The average revenue based loan is at a 35% rate over 5.5 months. Keep in mind that the cost associated with these loans is due to their inherent high risk nature…which is also why the term is very short. These loans tend to default at three times the rate of a traditional bank loan business client and therefor are set up this way. A business owner should always opt to try and get a bank loan before looking into alternatives like revenue based business loans.