6th January 2015
As part of our commitment to supporting great businesses, Crowd2Fund is this month launching a lending product specifically aimed at businesses which have been trading for at least 6 months. Traditionally businesses trading for less than 2 years have had few options aside from selling equity or relying on the founder’s ability to self-finance the business, however this product aims to balance the need to support fledgling businesses with an investor’s desire to earn a great return. It’s a great way to get access to debt finance without having to sell a percentage of the company.
Here are the key points:
1)Works very similarly to a loan, with monthly repayments as standard
2)The key difference is that the amount of capital repaid monthly is flexible, depending on monthly revenues
3)The minimum payment every month is accrued interest plus 10%, ensuring a minimum level of capital repayment every month
4)In this way the loan term increases or decreases to reflect how quickly the loan is repaid
Revenue loans are being pioneered by Crowd2Fund with the intention of supporting the community of businesses who choose not to sell equity, but have been operating profitably for less than 2 years – an area that remains greatly underserved in the current market.
Revenue loans will typically come with a higher interest rate than Crowd2Fund’s standard loan product due in part to the early stage that these businesses operate in, but this also compensates investors for their flexibility in receiving capital repayments. When used correctly a revenue loan is a powerful way to grow your business without requiring the business owner to sell ownership in the business – it’s a great way to bridge the gap between equity and debt funding.
What’s really exciting about this product is that by scaling repayments in a way that makes it easier to meet, it also reduces the risk of default to the investor. Fixed monthly repayments can be a big commitment for an early stage business, particularly for seasonal businesses. Crowd2Fund’s Revenue Loan product understands this and tailors repayments in a way that make sense for both the business and the investor.
For investors, the priority is knowing that they can expect to recoup their investment and make a return on their money. Every loan has a minimum monthly repayment of 1.1 times the monthly interest cost (similar to a credit card minimum payment) and all businesses must be able to demonstrate profitability and have been trading for at least six months. Interest rates with Revenue Loans are typically 10%-15%. The Crowd2Fund Risk team assesses all businesses prior to accepting them onto the site and conduct an affordability assessment to try to understand the potential for default.
We feel strongly that the Revenue Loan is a responsible way to lend money to early stage businesses, and allows investors to add another element to their portfolio whilst balancing risk and reward.
If you have any questions about the Revenue Loan or are interested in finding funding for your business, contact us by phone or email.
