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FOXBusiness.com’s Kate Rogers on the pros and cons of revenue-based financing models for small business.
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Right now to Kate -- with foxbusiness.com.
Who wrote a great article we can show you -- right now on our website by it sounds pretty confusing at first because it's about.
And record revenue sharing for business -- rate red -- based financing.
It's basically where you put up your business as collateral and at -- is -- all this is gonna be so hard to understand.
But your article really breaks it down so can you tell us about -- concept did.
Yes -- at some point -- another it's.
Pretty probable that most businesses have been in danger of being unable to pay their bills -- in this in the lending model actually -- them pay eight each month.
Based on a single digit allocation of the money that they actual brain through the door so if you don't make any money.
One month say it's a slow month or what traffic wasn't where you wanted to be you don't have to pay them back.
But -- With this convenience comes a different type of risk like you said your business is -- collateral so instead of what would normally happen weighted venture capital financing for example where the venture capitalists would have an equity seeking newer business for the life of your business.
You don't have to give up your business you know have to give up your personal credit.
A risk that were put up something like your house for collateral they're putting up -- actual business patents don't mean means all of that so if you actually.
All of that's gone.
But you get to keep your house and all your personal yes and so I get that yes but the interest rates with doing this is revenue of these high acting -- news I mean.
You said fifteen to 30% yes so it's much higher still I spoke with this company called -- average interest rates right now are zero essentially right now yes but you're paying for this convenience a lot of small businesses you struggle to get lines of credit can get loans and get them quickly.
They need working capital -- asking yet you can get this within two weeks to months gifted.
Qualify at all yes that they -- of their own personal and proprietary -- later capital goes about.
-- your background checks -- you that they do take into consideration more than just your credit score and a spike on numbers they take into consideration your actual business plan and your revenue models for years out so someone who is -- a one off consultant for example is -- here for that one off console so there are working with clients on a project by project because they don't know when their next projects in coming endorsement -- in construction for example they would.
They'd be -- good example of someone -- riskier to later capital.
But someone -- is a seasonal business so they have.
Great month summer months I think great for them but then winter -- could be slower they're fine because they have a projected revenue stream -- that later capital -- throughout the year that's so for example want the companies they spoke with was called higher help -- their like a travelocity for.
People who are moving so they hook you up with movers throughout the country.
And they're growing 80% month government and their cash flow positive but they're not where they need to be to get that venture capital finance right.
And they also didn't want to put up their house as collateral or given actually seeking their company so -- you have to if you work with venture capitalist who have to give them credit.
Exactly for -- -- So they are using -- capital and they -- they're on track to pay off their -- within the next three years which is the common -- scenario here so up to 30% interest for three years but you -- have until ten years -- back yes I -- ten years but.
These -- -- apples and it's almost impossible to.
-- -- -- along because you have so much time to pay it back I just paying that single digit percentage of what you bring in each month.
As laws -- industry.
It's it's a lot so the big things he spoke to love that they didn't they do like it because it's just a different kind of risk so you have to really assess what.
Kind of business -- and business model thank you are and what type of lending and -- business particularly small business is a risk in enough itself that I guess you figure -- you know either -- 80% now I'd really small business is going starts to be an -- for new worries more.
Likely take -- -- that anyway so right.
For the good work areas yeah -- is angry relative.
We've seen the I hate to -- how -- -- story so I was looking at different forms of lending for small businesses because of course this is such an issue for them getting these lines of credit securing these loans.
And alternative lending sources are crying for now this is one thing that's propping up I actually spoke with Ana I'd be the National Federation of Independent Business rent.
There chief economist that build uncle -- he was saying to me that really more forms of lending for small business anything that gives them more -- Is a good thing in this market and as long as they're taking the time to assess their own business and learning what's right for them and right when -- -- Again it's good because it's resulting in a different kind of market out there yeah.
Lenders kind of figuring out how vacated jumping in and -- -- based financing.
What's at risk is your article.
Some of saying now yes it's up on thank you writers Fox Business think you for coming -- that -- gonna go to a short break right now and we will be back with a list Donald talking about.
A Chinese.
