Maverick Capital Funding February 10, 2016 No Comments

Ways To Get Revenue Based Financing

Mike Hendries was looking for ways to get revenue based financing and knew his company needed a hefty cash infusion. Without physical assets to borrow against, a bank loan was out of the question; venture capital wasn’t an option, either. “We were too late for angel funding and too early for growth funding,” says Hendries

His solution: borrow $100,000 from Maverick Capital Funding, a New York based financing firm that specializes in revenue-based deals with small businesses poised for big growth. Rather than forfeit equity or repay a fixed monthly amount, Hendries pays Maverick Capital Funding 7 percent of its monthly revenue. The more the company makes in a given month, the faster it repays the debt.

Thanks to the money borrowed, which Hendries sank into sales and marketing, the company turned its business model on its head and was able to substantially grow revenue.

Maverick Capital Funding is among a handful of U.S. firms offering five-, six- and seven-figure revenue or royalty financing to young companies with high gross margins.  If you want to pursue this type of financing, here’s what you need to do.

Demonstrate growth potential. 

In order to qualify for most revenue based financing, financiers want to see proof of your profit margins and growth potential; the same goes for healthy cash flow. Maverick Capital Funding, for example, wants at least 12 to 24 months of solid financial documentation, with minimum revenue of $15,000 a month.

Show how you’ll use the money.

If you can’t specify how you’ll use the funds, you’re not ready for a revenue or royalty loan. Any lender will want assurance that you’ll use their money for growth-oriented activities and not something frivolous like a trip to Bermuda. The typical Maverick customer uses funds to hire a vice president of sales, launch a marketing initiative, or finish and launch a product.

Make sure that revenue based financing is for you. 

A revenue or royalty loan is worthless if repaying it completely hobbles your cash flow. A $75,000 royalty deal with Maverick Capital Funding would make sense if: Sales were exponential, and you needed money for growth aimed initiatives such as moving to a bigger facility and buy packaging in bulk.

Think mentorship. 

It’s not just about who can cut you the best deal. You’re going to want an investor that can help you grow your business. Maverick Capital Funding is almost like a VC, but without buying equity.

Maverick Capital Funding January 21, 2016 1 Comment

Is a Merchant Cash Advance Right For Me?

The Merchant cash advance (MCA) has become really popular in the past few years with businesses looking for short term financing. Also known as cash advances or ACH loans, MCAs provide easy access to funding for entrepreneurs who need it.

While getting an MCA is easier than getting any other type of funding, this ease comes at a cost, because quite often, this type of financing can be expensive.

The cost and short-term purpose of this product can make this a risky proposition if used without caution. But if used correctly, it can also provide access to funding for businesses that really need it. From this article you will learn:

What a merchant cash advance is and how they can work for your business.

Originally, a merchant cash advance was a product that enabled you to sell your businesses future credit card sales in exchange for an immediate cash payment. The product was originally intended for retailers and companies that primarily deal with credit card sales. The product has evolved quite a bit and you’re now able finance almost any type of future sales revenue.

Given how the product has evolved, calling it a “merchant cash advance” is a bit misleading. The name “ACH loan” or “business cash advance” seems more appropriate.

The business model is interesting. A merchant cash advance in actuality is not a loan because  we are not lending you any money. We are simply purchasing future assets (sales) and as such the process is subject to different underwriting rules. For more details, learn about business cash advances.

How does a cash advance work?
Cash advances are really pretty simple. We review your company sales and determines how much we can advance you and the terms at which you have to pay it back. The payback is often calculated using a “factor” that is multiplied against the funds we provided.

Factors range from 1.09 to 1.50. However, these values can vary. For example, if you get $100,000 with a 1.15 factor, the payback is $115,000 ($100,000 x 1.15).

The next step is calculating the payback time. Payback often ranges from three months to 15 months. Typically, the longer paybacks have higher factor rates. However, risk is still the most important variable in determining the factor rate. Therefore, you could potentially have a 1.50 factor rate and a three-month payback if your circumstances are less than desirable.

In reality, the combination of factor and payback time dictates how expensive this proposition is for you. Here is an example. A 1.20 payback factor sounds really expensive, right? You must pay back 20% more than what you got.

Well, maybe.

If you had a payback of only three months, it would be pretty expensive – if you calculated on a yearly basis. But if you had a payback of 36 months (three years), it becomes much more reasonable. That is why the combination of the factor and payback time is crucial.

How do I repay my cash advance?
The way you repay cash advances varies based on the type of sales you are financing. You have a couple of options.

If you are financing credit card sales, the cash advance is paid by splitting your daily revenues with the cash advance company. The rate of payment is called the “retrieval rate,” which can range from 3% to 15% of your sales (this rate varies). In other words, 3% to 15% of your daily sales go to pay the cash advance until the debt is satisfied.

If you are financing general sales, the cash advance company gets paid by making a daily debit from your business bank account. Unlike revenue shares from credit card sales, the payment amount is fixed.