Is Revenue-Based Financing Right For Your Business?

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The lending environment continues to be tight with banks holdingpotential borrowers to strict standard. As a result, businesses have begun toexplore new ways of obtaining financing. One such method is calledrevenue-based financing (RBF). Is this type of financing right for yourbusiness?
How does it work?
The lender issues a loan and the interest payment is based on thecompany’s revenue over a specified length of time. For instance, the smallbusiness would pay the lender 2-5% of revenues each month. If revenues dropfrom $30,000 to $20,000, the borrower owes $400 as opposed to $600 in the priormonth, which is based on a 2% interest rate. Therefore, it is conceivable forthe company to pay no interest at all if the revenues went to zero for onemonth.
What about the terms?
Rates and the size of the loan vary by lender and the businessapplying for the financing, but most loans range from $50,000 to $250,000 andsometimes larger. Interest rates are typically around 20% annually, which ishigher than those offered by traditional banks. However, the requirements areless stringent than traditional banks and it only takes a couple of weeks toreceive the actual financing.
What are the requirements to receive arevenue-based loan?
Most lenders want to see at least $100,000 in annual revenues andmargins should be at or near 50% to pay for the interest. In addition, most ofthe companies that receive financing are growing quickly, lack high fixedcosts, and cannot fund their growth organically. Specifically, software andtechnology companies are the most likely candidates to receive this type offinancing. Businesses in the restaurant, manufacturing and other traditionalbrick and mortar businesses, wouldn’t be viable candidates for this type oflending as the margins are typically small in those industries. Traditionalbanks would be the best option for those types of companies.
About BIDaWIZBIDaWIZ is anonline marketplace where small businesses can obtain professional tax, accounting and financialadvice and services from a network of over 750 online CPAs, EAs,CFPs & Tax JDs.  BIDaWIZ suite of services include the ability to askprofessionals finance and taxquestions for free, find and work with a trusted professional online for a fullservice engagement, and to subscribe to the premium tax and financialnewsletter and knowledge base.

Will The R&D Tax Credit BeReinstated Again?

The research and development credit expired for the 15th time atthe end of 2011 and wasn’t reinstated as some expected when lawmakers agreed onextending the payroll tax cut in February 2012. While the R&D credit istechnically no longer in effect, it is likely that the credit will still bereinstated for 2012 as hearings conducted by lawmakers have been encouraging.Small businesses need to be aware of this credit since most are eligible andnever claim it.
Is my business eligible for the taxcredit?
If your business focuses on the development of new products orservices through innovation in technology or new processes, the R&D creditshould be considered. This is often overlooked by entrepreneurs, who assumethey must have on-site laboratories or breakthrough research to claim thecredits. Or they may fear they’ll face complex tax calculations or trigger an IRS audit. However, small and medium sized businesses that employ engineers oroutsource product testing, can claim R&D credits. These credits areparticularly good for startups, since R&D costs incurred in years when acompany has no income can be carried forward to offset taxes on future profits.
How is the R&D credit calculated?There are two basic methods for calculating a company’s research taxcredit: the regular method and the alternative simplified. The details of thecalculation are complex, but the basics for the regular method are as follows:Under the regular method, the credit is calculated as 20 percent of the amountof qualified research expenses for the year that exceed a specified base. The IRS just wants to make sure that you are increasingyour investment in R&D as a percentage of sales each year. This means thatyou are spending money hiring new employees that improve a design, process,product or service.
When will the credit be reinstated?It is difficult to predict exactly. However, lawmakers will likelymeet after the November elections to decide whether or not they want totemporarily extend the bush tax cuts. One of the topics that will likely bereviewed and reinstated is the R&D tax credit. We believe this time around,it is quite possible that this credit could be made permanent.
BIDaWIZ is an online marketplace where small businesses can obtain professional tax, accounting and financial advice and services from a network of over 750 online CPAs, EAs, CFPs & Tax JDs. BIDaWIZ suite of services include the ability to ask professionals finance and tax questions for free, find and work with a trusted professional online for a full service engagement, and to subscribe to the premium tax and financial newsletter and knowledge base.