Larry Baker is the co-founder at Bolstr. Through a large network of investors who provide fast and flexible business loans, his team is bringing affordable access to capital to small and medium business owners.
In the world of traditional banking, small business loans have all but disappeared. Because of the relatively high risk and low return associated with these loans, banks have become increasingly less willing to offer loans to smaller companies, making it extremely difficult for companies with less than $5 million of annual revenue to obtain a bank loan. As a result, these businesses have been forced to look for financing options outside the traditional banking system.
More Funding Options for Entrepreneurs
Interestingly, this shift in behavior from the banks has created more and better options for small businesses to raise capital. Alternative lenders now offer a variety of lending solutions that simplify and expand access to capital. The technology-driven process allows prospects to submit applications and underwriting loans online, resulting in higher approval rates than traditional lenders.
But perhaps the biggest advantage to the emerging online lending space is an increased choice in terms of loans types and structure. Borrowers can find loans ranging from long-term to short-term, high to low interest rates, small to large borrowing amounts. Loan structures vary anywhere from traditional term loans to daily cash flow repayment loans.
The Benefits of a Revenue Share Loan Structure
Revenue share is a loan structure attractive to small businesses and investors alike. This revenue share structure’s biggest advantage over a traditional loan is flexible monthly repayments that adjust to a company’s revenue. So businesses have higher repayments in months when they are thriving, and lower repayments during slower months. This means that the total time to pay back is not fixed, but rather it will vary with business performance. It also means that the incentives of the borrowers are completely aligned with those of the investors. Our investors do not receive equity in the companies they fund, so they see their biggest upside when companies are growing and making higher monthly repayments.
How the Revenue Share Structure Works
Revenue sharing is a fairly simple concept. Rather than paying back fixed principal and interest amounts, businesses repay a fixed percentage of their monthly revenue to investors. This continues each month until they’ve reached a predetermined repayment amount.
Here’s an example. If you borrow $100,000 from an investor, your revenue share is 3%, and your total repayment multiple is 1.2x (or $120,000), you will pay back 3% of your revenue each month until you’ve paid a total of $120,000.
Do I qualify for a Revenue Share Loan?
Because repayments are based on a percentage of monthly revenue and lenders aim for a 2-3 year loan term, the revenue share structure is best setup for companies with at least $200,000 in annual revenue. Investors are focused on investing in companies that are raising capital for growth projects, such as new locations, product launches, renovations, machinery, improved online or e-commerce presence, and other similar initiatives.
Do They Really Work?
At Bolstr, we’ve seen a ton of success using revenue share loans for a number of different types of companies taking on a variety of growth initiatives, but it’s particularly well-suited for manufacturing, retail, and food and beverage companies because it allows them to manage through any seasonality and other fluctuations in their cash flow.
Check out our success stories to see some companies that have benefitted from a revenue share loan from Bolstr and how they used their loans to grow their businesses.
You can also learn more about Bolstr at bolstr.com.
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