When Fleximize launched its Revenue Advance loan in January 2014, it became the first company in the UK to offer this form of revenue-based financing. For Fleximize, Revenue Advance appeared to be the perfect funding option for small businesses that had fluctuating sales patterns and were looking for a flexible finance solution. It also offered a great balance between traditional debt financing, which comes with more risk, and equity financing, which can see business owners losing control of their company. But what exactly is Revenue Advance, and why could it be the best type of business loan for your business?
What is Revenue Advance?
As the name would suggest, the Revenue Advance loan is linked to a company’s revenue. Instead of having to repay a fixed amount each month, businesses simply pay Fleximize an agreed percentage of their monthly turnover until the loan is paid off in full. This makes the Revenue Advance a great option for innovative tech startups that only make a little revenue during the development stage, or seasonal businesses that have higher revenues in the summer or winter. It’s a low-risk form of business funding that doesn’t put businesses under too much strain.
- Revenue-based financing
- A form of business finance that is provided to small and growing companies in exchange for a share of their future revenues. It is often seen as a third funding option that sits between debt financing and equity financing.
- Revenue Advance
- Fleximize's revenue-based finance solution that lets businesses make repayments in line with their monthly revenue. Companies pay a set percentage of their monthly turnover until the full loan amount is paid off.
What businesses are suitable for Revenue Advance?
Revenue Advance was inspired by the revenue-based financing model that first emerged in the United States in the late 1980s. It was traditionally used to finance businesses in the energy industry that had high startup costs but also the potential for large revenues and profits in the future. Revenue-based financing was perfect because it did not squeeze companies as they went through their startup phase, but still offered a return later on. This made oil and mining the ideal industries for revenue-based financing.
Soon, revenue-based financing was being used in the biotech and pharmaceutical industry too. Since then, a few companies have popped up in the US, offering to fund early-stage and young high-growth companies on a revenue-based model. Generally, these are used for cash flow purposes or the introduction of new products.
At Fleximize, we spent a lot of time trying to tweak and improve the model so that we could bring revenue-based financing to the UK and help a much wider range of small and medium-sized businesses than have traditionally used this type of financing. That’s why we think the Revenue Advance is a great fit for practically any business to help manage cash flow and reduce risk.
Revenue Advance in practice
Because Revenue Advance is tied to a company’s revenue, it can be the ideal funding solution for businesses that see seasonal peaks and troughs in their sales patterns.
For example, an ice cream parlour on Brighton seafront will probably make a lot less money in January than it does in June. With a Revenue Advance loan, on an agreed repayment rate of 10%, it would only have to repay £1,000 in a month when its revenue totalled £10,000. On the other hand, with a traditional fixed instalment loan, it might have to repay £3,000, almost a third of its monthly revenue. This would put the business under an incredible amount of strain during the winter.