Things ‘Revenue financing’ lenders look for while reviewing a loan application?

 

The prime concern for any lender, regardless of the type of funding they offer, the foremost concern for any lender is to “if the borrower can payback the debt or borrowed money” on mutually agreed terms. All the requests for documentation every question they ask it all goes back to one thing, can this borrower afford this debt. There are several factors they look for to determine if the company has the ability to repay the loan.

During the application process, banks or the financers or the lenders ask for the specific sets of the financial statements or documents. Following things they look for in those documents, besides document verification, they also verify your ability to repay loans via other means such as your credit score, cash flow history, projection for the business etc.

 

Also read: What factors of a business decide the type of the loan they should apply.

 

Following are the things Revenue financing lender’s look for while reviewing a loan application.

 

1. Cashflow

In the revenue-based financing, one of the important criteria is cashflow. The lenders will look at the factors indicating the incoming cash flow into the business. There are several sources to check the flow of cash flow coming into the businesses. Thus, a lender asks for the bank statement (3-6 months) of the business to determine the cash flow.

 

2. Time in Business

For a company seeking RBF funding, it is always good for a company to be in the business for years. Although the latest, 3 month’s of the financial statement by most lenders is asked for availing the loan, it is always a plus point to be in the business for long.

 

3. Type of Industry

Although technically not restricted to any Industry, the lenders have their opinion on different industries while granting Revenue-based loans. The rate also varies as per the industry and it could be a crucial factor. They may offer a different rate for different industries based on the revenue, recovery of funds, market demand (seasonal) etc.

 

Also read: Why you shouldn’t worry about the rate of the funding when it comes to Revenue-based financing.

4. Responsible bank management

 

a) Consistent deposits

Based on responsible bank management the lenders are looking at consistent deposits. They don’t want to see a real estate agent with the deposit here or there they’re looking for a bunch of deposits in a month. So, for example, a retail company process transactions every day so there is a “merchant deposit” every single day, consistently.
.
 
 
 
 
 
 

b) Positive cashflow

Positive cashflow is a great example of the company’s financial health (not necessarily though but in most cases). Positive cash flow indicates that more money going in the bank account to the money going out.
.
 

 

c) Low to no NSFs (Non-sufficient funds)

Low or No NSFs strikes the utmost concern of the lender (which is “if the borrower can payback the debt”) If your bank statement or financial statement indicates NSF or Non-sufficient funds, it becomes a deal killer and your application can be rejected immediately. As the company couldn’t is possibly overdrawing the account. So the question emerges that how could a company make a loan payment when you can’t even afford your current expenses.

 

d) Positive ending bank balances

By positive ending bank balance in lender’s parlance meaning positive closing balance at the conclusion of an accounting period. Lenders require a positive closing balance to see that at the end of every month that there’s money left over with the company. Money left over to pay a loan back if there is no money left over, the lenders have serious reasons to be worried.

The above verification points are very basics and are present in almost every lender. There are some lenders who may seek additional information information. This may be the case for a bigger amount, weak company documents, or specific to the business or payment model of the company. This additional verification process may include the following factors.

Our partner offers up to 500K in funding within 48 hours. No credit score and no collateral required. Just 3 months in business with at least 7K in monthly sales. Click To Learn More And Apply Today!

 

5. Tax returns

Some financing companies like to take a look at your tax return, usually 1-3 years of returns. Alternative lenders that do “term loans” they’ll want one-year tax returns.

They’ll gonna look for increasing revenues and profits. They want to see or check on the tax returns document if the revenue of the company has increased from year to year, they want to see the profits increase from year to year.

 

6. Profit, no loss

what the lenders look for then? lenders are looking to lend to people that are showing a profit because it indicates that you’re making money and that is kind of the transition between a small business or the small business has the potential to write off everything to pay out as little in tax as possible.