Revenue Factors, otherwise known as Merchant Cash Advance are short term, working capital financing programs issued by private commercial lenders. Revenue Factors are exclusively secured by the future revenue stream of the business and therefore don't require traditional collateral like commercial property or equipment.
Revenue factors are not loans in the conventional sense, they're similar but a different kind of animal much like Tigers and Cheetahs are similar but they also have profound differences that make each one perfectly suited to their environment. In the same way, traditional banking products look and "smell" similar to cash advances but have differences like, for example, the payoff of principal and interest: Revenue Factor payments include principal & interest from the very first payment and are quick to payoff. Conventional term loans pay off interest first which means you can make payments for years on them without even denting your principal amount.
Lenders Tip: Paying down incremental principal payments on Term Loans while making interest payments reduces your overall cost of capital in a very meaningful way. Bankers rarely give out this information because it is a huge profit center for them.
So, what are revenue factors and why do they cost so much more than conventional bank loans?
It's not complicated at all; revenue factors are working capital advances issued by private business owners (lender) to other private business owners (Merchants) in exchange for a piece of the merchant's future revenue stream. These working capital advances are secured exclusively by the merchant's future revenue making them the highest risk category of commercial financing.
Every business owner knows how vulnerable their revenue streams are to sudden external changes even in the best of times, the last 20 months have made those vulnerabilities even more pronounced (right?). Over 200,000 small businesses closed permanently in the last 18 months as a direct result of covid-19 policies. Along with each one of those closed businesses were lenders like myself who were forces to swallow massive losses, some lenders didn't survive just like their client merchants.
Despite the cost (and risk for the lender), There is huge demand for revenue factor financing from Merchants who, lacking other sources of capital or being already leveraged can MONITIZE the one asset that no one else will finance: Future revenues! I have financed many situations where capital was required urgently to cover unexpected costs or to capitalize on sudden opportunities that no commercial bank would have financed at all, much less in 48 hours!
Another advantage of Private commercial lending is the lack of spill-over into the conventional credit score system which means business owners can lever up and combine conventional financing (LOC, equipment loans), Government Stimulus (PPP, EIDL, SBA loans) AND cash advance at the same time giving a much higher Loan-to-asset ratio in favor of the business owner.
Revenue factors aren't for every situation but, like any specialized product they serve a purpose when needed. For those situations a quote is quick and easy: simply submitting the three (3) most recent bank statements along with some basic information get's an approval & offer in most situations. Once an offer for funding is made and accepted then contracts are issued, signed and it usually only takes 48 hours to actually receive the proceeds making Revenue Factors the quickest source of immediate working capital for America's small business owners.