A Deep Dive on Revenue-Based Financing with Heather Francis, Part 1
Due to a misconception that traditional bank loans are the only credible funding option, there is a lot of misinformation about Revenue-Based Financing and other alternative business finance products. With this article series, we aim to provide clarity and transparency around Revenue-Based Financing — what it is, how it works, and its impact on small businesses.
In this article, you’ll read deep-dive info and advice from our CEO, Heather Francis, who has worked in the alternative finance space for more than 15 years.
Q: What are the fundamental differences between Revenue-Based Financing and traditional bank loans?
A: Revenue-Based Finance provides immediate access to a percentage of projected future sales from an existing business. A bank loan is not based on a business’s projected sales, and is providing capital to a merchant based on their credit history. A bank loan will take many factors into account outside of business revenue, such as credit score, collateral, personal indebtedness, and more. They can also take weeks to review and you could still get denied due to their strict guidelines.
Q: What are some of the key benefits of Revenue-Based Finance over traditional bank loans?
A: Our products move faster than traditional bank funding – sometimes even the same day you apply. Revenue-Based Financing requires no collateral or personal guarantees, and it is more lenient with negative data on a credit report.
Q: What are some common reasons a company would pursue Revenue-Based Finance over a bank loan?
A: Expansion or rapid scaling; we’ve talked to merchants who have used their financing to bring on new employees to handle an increase in volume, or to buy pieces of equipment to help them take on big jobs. Plus repairs to equipment, things that are costly to fix and are vital to their operations.
Q: Some think Revenue-Based Financing is predatory. How do you think this misconception got its start?
A: There’s a misconception that if a bank is not providing the financing then it is predatory. And unfortunately, there are some bad practices in this space, just like with any other industry. Practices like hidden fees, COJs, stacking. Thankfully many of these bad practices have been called out and brought to light in recent years, but there are certainly still some bad players out there who seek to take advantage of small business owners. That’s why it’s important to really research the company you choose to obtain funding with. Read their reviews, learn what their clients are saying. Arm yourself with as much data and info as possible when making these big choices for your business.
Q: You mentioned stacking. Can you briefly explain stacking and your stance on this bad practice?
A: Stacking is an industry-specific term describing the practice of taking on multiple finance products in the same time period, which overleverages the business. Elevate does not condone stacking. When a financial institution reviews a business for funding, they take into account the current cash flow restrictions and provide an offer based on what they feel the business can afford. Stacking puts the business at risk for negative cash flow and can cause harm that the business can’t recover from. This bad practice is seen throughout many financial sectors, like credit card debt and student loan debt.
Q: Since the Revenue-Based Finance industry is not regulated in the same way as traditional finance, what is Elevate doing to protect its borrowers and prospective borrowers?
A: Over the past two years, state regulatory bodies have started enacting policies regarding our product, and we are adhering to all state regulatory requirements. Our industry also adheres to many federal regulatory bodies and their guidelines, such as the FTC and UDAAP policies. Elevate is also a member of the Small Business Finance Association (SBFA), which continues to provide guidance and lay framework for all future regulation, both state and federal.
Q: What advice would you give to a business owner who is considering Revenue-Based Finance, but is feeling reluctant to take out financing with a non-bank entity?
A: Work with a funding company that is a part of a reputable association. Make sure that you have researched the company and its reviews. Make sure that you understand the contract and what is required of you. If there are guidelines or requirements that you do not feel comfortable with or do not feel you can meet, it may not be a good idea.
Q: As a leader in this industry, what do you wish more people realized about Revenue-Based Finance and its value to businesses?
A: We are at a point today where banks have been unable to compete in the alternative market due to restrictions on the regulatory and technology front, and that has limited their ability to adapt and change to provide more complex products with faster turnaround times. And in the current economic environment, with interest rates rising and qualification requirements tightening, our product is a solid alternative. If you qualify for a bank loan, you should try to seek out those options, but keep in mind any potential restraints such as time, collateral, or credit issues. If any of these are restraints for you personally, you should keep our products in mind as an option, too.
Heather Francis
CEO, Elevate Funding
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