Great for —

• Companies with efficient customer acquisition channels. E-commerce companies can provide sales performance data on finding new customers or having customers return to give confidence to lenders that they can pay the debt back. 

• These loans are paid back consistently as sales happen and loans can sometimes grow with performance. This is based on revenue and is sized to your business.

• Accessing capital while retaining ownership and control of the businesses. 

Things to Watch Out For — 

• Some fundings will be paid back based on a fixed percentage of revenue and others will require continual payments. The payments on the loan continue regardless of whether revenue is growing or not. It is important for the business to have revenue that is predictable to avoid having payments become detrimental to the business. With some providers, payments will be required whether you have borrowed or not.

• Many offer this financing in the form of a credit card that can’t be widely used for other general business expenses such as payroll. While the financing can still be utilized for acquiring new customers (what it is designed for), it does not bring the cash benefit that other financings offer.

• Some providers have different interest rates depending on where you spend the capital. It is important to understand if there are discounts by spending with preferred vendors and receiving a list of vendors.