15th April 2020
Our revenue loan is a completely unique financial product, perfectly suited to small businesses that undergo seasonal revenue fluctuations. During the COVID-19 crisis, we are promoting this innovative product — helping businesses access capital, earn good interest for investors, and offer much-needed flexibility. The Crowd2Fund revenue loan is well established and already used by a wide range of clients.
All businesses that apply for a revenue loan will still undergo our strict credit approval process. We give particularly careful attention to fluctuations in revenue, based on bank statements and management accounts. The remittance amount (the % of revenue repaid monthly) is estimated and forecast to give an expected loan term, which may be shorter or longer depending on company performance.
How are the repayments structured?
- Every month, the business must report an accurate revenue amount based on funds received in their bank account. This is reconciled with other company reporting to ensure accuracy.
- The repayment of both capital and interest is then calculated by multiplying the turnover by the remittance. In the busier months your business pays off more debt, and in the quieter months it will pay off less.
- If a business is experiencing fluctuations in monthly turnover but has a fixed loan, this could result in cash flow issues. However, the flexible nature of our Revenue Loan means the monthly payments correlate with — and are proportional to — the monthly turnover.
A Revenue Loan Example
The following demonstrates how a revenue loan could be structured for a business:
Loan amount - £50,000
Remittance - 2.3%
Interest rate - 10% APR
Last year turnover - £1,234,567
Term - 2 Years
Est. Repayment - £2,366.25
In this example, the remittance is 2.3%. If your business had a turnover of £100,000 in March, then the payment for April would be £2,300. However, if the turnover was £300,000 the payment would be £6,900. In the event of a month where turnover was low (in this case, less than £20,000) the company would be expected to pay a minimum payment — this is the interest due, plus 10%. Here, the minimum payment would be £458.33.
This loan is a great advantage during a period of low revenue, as it helps your business keep a perfect loan status without putting pressure on your cash flow — all while presenting a clear repayment structure.
Switching to a Revenue Loan
During this unprecedented crisis, we are offering the option for suitable businesses to switch to a Revenue Loan from a Fixed Term Loan. This is in the interest of all parties involved, as it helps preserve businesses during this challenging time and prepares them for a solid rebound. Investors are also likely to earn more interest as a result of a switch, as capital may be deployed for longer. However, an investor can still choose to sell their loan on the Exchange.
Businesses looking to switch loans also need to provide evidence that they have applied for CBILS emergency funding as part of the application process.
Questions and Answers
Can businesses change back to a fixed loan later on?
Businesses can revert to fixed repayments after the crisis.
What is the minimum payment and how is it calculated?
The minimum payment is calculated as the interest due, plus 10%.
If the interest due was £100, the minimum payment would be £110.
How does Crowd2Fund know businesses are reporting monthly revenue accurately?
We will compare the revenue reported to accounts filed at Companies House.
If there are discrepancies, we will expect you to top up your payment.
What about informing investors if businesses switch to a Revenue Loan?
Crowd2Fund will inform investors about the change in loan schedule on your behalf.
What happens if businesses don’t repay the capital after the maximum term?
If businesses have not paid all the capital by the maximum term they will be requested to make a bullet repayment.
Do businesses need to sign new legal agreements?
Businesses will need to sign a ‘Restructure’ agreement, which outlines the new terms of the agreement. However, all clauses of the original loan agreement still apply.
How are repayments taken from businesses?
The repayments will be taken via GoCardless.
What happens if businesses don’t make the minimum repayment?
If businesses do not make the minimum payment, Crowd2Fund will have to explore a full recovery via the legal route.
Capital at risk.
