Business cash advance (revenue loan)

Q: What is a business cash advance (revenue loan)?

This newer type of business loan allows you to ‘sell’ a portion of your company’s revenue in exchange for an advance of capital. So, instead of paying back a fixed amount each month, as you might do with a traditional loan, you pay the lender an agreed percentage of your monthly sales until the advance, including interest, is paid off in full. You can borrow from ₦50,000 to ₦10,000,000. Term ranges from 3 months to 5 years. Typically costs 2-10% (depending on the product, lender, and your business profile). A business cash advance is a type of lending that’s based on your future revenue. It comes in a few different forms, the most common of which is a merchant cash advance. You’ll also hear it referred to as a revenue loan or revenue-based financing.

Quick facts

Amount

From ₦50,000 to ₦10,000,000

Term

Between 3 months and 5 years

Cost

Typically 2-10% (depending on the product, lender and your business profile)

Speed

24 hours (longer for larger amounts)

Purpose of finance

To ease cash flow

Suitable for

To ease cash flow

What is a business cash advance (revenue loan)?

This newer type of business loan allows you to ‘sell’ a portion of your company’s revenue in exchange for an advance of capital. So, instead of paying back a fixed amount each month, as you might do with a traditional loan, you pay the lender an agreed percentage of your monthly sales until the advance, including interest, is paid off in full.

You can borrow from ₦50,000 to ₦10,000,000. Term ranges from 3 months to 5 years. Typically costs 2-10% (depending on the product, lender, and your business profile).

A business cash advance is a type of lending that’s based on your future revenue. It comes in a few different forms, the most common of which is a merchant cash advance. You’ll also hear it referred to as a revenue loan or revenue-based financing.

Why choose a business cash advance (revenue loan)?

The main purpose of this is to ease cash flow against future forecasted income.

A business cash advance may be useful if you have a seasonal business because it means you can align repayments to your trading peaks and troughs – you can pay back more when sales are higher and less when sales are lower.

It could also be a good option if you find you’re not eligible for a bank loan, but you don’t want to part with company equity. Business cash advances are more expensive than bank loans. Perhaps the most popular type of business cash advance is the merchant cash advance. You might also want to look at supply chain finance.

Pros and Cons of a business cash advance (revenue loan)?

Fast access to funds.
No fixed monthly instalments.
No collateral required.
The principal amount is fixed.
Even with poor credit, you may find borrowing possible.

Cons:

Not a long-term borrowing solution – expensive compared to other options.
Regular deductions (could be daily!) from your credit or future revenue could seriously hamper growth.
Often not regulated, so both borrower and lender are exposed.
As you are borrowing against future revenue, you lose autonomy in your business. You may find that you are no longer dictating your business’s short-term operational hours until the loan is paid off.