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A Deep Dive on Revenue-Based Financing with Heather Francis, Part 2

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. 

Central Theme: Business Credit

Q: Why do you think it’s a common misconception that Revenue-Based Finance is only a viable funding choice for businesses with poor credit? 
A: I think the “alternative financing” term can make it seem as though it’s only an option for people who do not qualify for traditional bank loans or lines of credit. But any business that has an immediate need for working capital can benefit specifically from the speed and ease of access that our product provides.

Q: What are some common reasons a business with good or excellent credit would take out Revenue-Based Financing rather than a bank loan or another financial product?
A: Our product can be very advantageous for business owners, no matter their credit score. No set repayment, no collateral, no accruing interest — those are pretty big advantages. And turnaround time seems to be increasingly important to SMBs due to cash crunches.

Q: While we’re on the topic of credit — why do you think it’s a misconception that taking out Revenue-Based Financing will wreck your credit? 
A: Any transaction that is financial in nature and has a mutual agreement in place has the ability to affect one’s credit through a default process if awarded by a judge. That being said, revenue-based products are not usually reported to credit bureaus in the same manner as other financial products out there. The misconception of wrecking credit comes from brokers “shotgunning” applications out to funders who pull credit to review for eligibility. This practice has been curtailed over the past years. Continued education of business owners and the sophistication of alternative finance/fintech providers continues to provide the ability to shop around without exposing credit risk or personal information.

Q: Do Revenue-Based Financing and bank loans impact merchant credit in different ways?
A: Since repayment on our product is paid out when receivables come in and not on an amortization schedule, funders in our space cannot report directly to credit bureaus on payments being current. They can, however, have defaults through court recorded judgments that affect one’s credit.

Q: Why does Elevate provide its services without taking credit score into account? 
A: Elevate doesn’t seek to shame its merchants based on their financial situations. There are a variety of stories and backgrounds when it comes to business owners. Many do tremendous business now but are hindered by past bumps in the road. Our goal is to help merchants succeed, and a large part of that is to review their current business health and not focus on past challenges. 

Q: Any advice you’d give business owners that are considering Revenue-Based Financing, regardless of credit profile?
A: Any time you’re considering funding options, regardless of credit profile, it’s always best to compare as many options as you can. Work with direct funders who aren’t shopping out your deals, and do your research on reputation. Be sure to ask questions like “what fees are being assessed?”, and read through your contracts. There are so many good funding options out there, so be sure to compare and find the best fit for your business.

Heather Francis

Heather Francis

CEO, Elevate Funding