Revenue based bank loans
Most bank loans come with rigid repayment schedules and amounts – on the same date each month you’ll have to repay the agreed sum – there’s no two ways about it. Increasingly banks are being encouraged to be a little more flexible in their lending to small businesses in particular – in an effort to get the economy booming once again. One of the emerging trends is an increase in the uptake of revenue based bank loans – they eliminate the need for fixed monthly repayments, and introduce much easier to manage, flexible monthly repayments.
The repayment schedule used on a revenue based financing loan is slightly different to that of a merchant cash advance. With a merchant cash advance there is no interest accrued over the course of the financing period – you’ll simply pay an amount on top of what you borrow, plus fees. That means you’re always working towards paying off a fixed amount. With a bank loan however you’ll still be accruing interest – so if your business did hit a low period of sales, the sum outstanding would continue to grow.
There’s a good deal of choice out there when it comes to revenue based financing – the main decision to make is whether you go with a fixed total sum to repay in a merchant cash advance – or a variable total sum to repay with a revenue based loan. If it takes you 10 years instead of five years to pay off the loan, you could end up paying a lot more in interest than you have first envisaged.