Over the years, we have had fast growing companies come to us looking for help both getting new capital and refinancing (out) merchant cash advance loans that they had taken out. In one instance, a company needed to make payroll by the end of the week and had no money in their bank account to do it! Given that very short deadline, the only option they could find was to quickly take out a merchant cash advance loan. The good news is the money came quickly – within a couple of days. The bad news was the loans had a very short maturity, ranging from 6-9 months. Repayment was made on either a monthly or daily basis. In addition, the cost of capital was over 20% of the original amount borrowed but when paid over only 6 months the effective interest rate was close to 50%. For a growing company such a short repayment term combined with a high cost can be a huge burden.
One solution we found to this was to refinance through Revenue Based Financing. Available for growing companies with at least $4 million in revenue, revenue based financing is repaid as a percentage of future revenue, over a much LONGER term, typically 4-5 years, rather than short term merchant cash advance loans. As a result, companies are able to significantly increase their free cash flow from these loans. I had one client that had over $500,000 in merchant cash loans, and by refinancing through a revenue-based loan product increased their effective free cash flow by $20,000 per month.
Another attractive feature of revenue based financing is this type of product does not typically require personal guarantees or financial covenants. Perhaps even more important, this revenue based financing products typically do not have any equity ownership requirements (dilution), so owners keep 100% of the business.
If you think, this situation could be attractive to you. Give us a call and we can tell you pretty quickly if you could have a new path to financing your growth at terms far better than your current merchant cash advance lender provides.