What is cycle-based funding? - Kiara Fintech

What is cycle-based funding?

cycle-based funding sounds familiar? Well if not, you may want to keep reading as this is a concept that can greatly help you in the world of online commerce and especially if you are just starting out.

Cycle-Based Financing This is a financing method that many people use, especially their new businesses the bank is less quick to lend money based on their credit rating and even when the bank gives, most of those businesses have to pay regular monthly payments that are not necessarily ready to commit to.

So what exactly is cycle-based funding?

Financing based on this cycle is basically a financing method or in other words a loan, that different companies provide to different clients. The method stipulates that the financing you receive for the business, you return on the basis of the profit generated by the business (turnover) instead of on the basis of the bank account. That is, pay a percentage of the profit instead of paying a fixed monthly amount. Financing in such a configuration gives businesses an opportunity to grow more comfortably and safely because even if it was a difficult month, the payback is accordingly. Most often this way of financing is common among many internet businesses, due to higher fluctuations of the monthly salary in the field.

And what does it even give me?

Getting funding easily

Usually the requirements for financing on a cycle-based basis compared to traditional financing are less, and sometimes there are enough sales figures that are only a few days to receive the financing, compared to long months of work history when it comes to asking the bank.

Partnership of interests

When the payment to the finance company is determined as a percentage of the profits, the finance company also has a significant interest that the business will earn more. The financing company is a kind of investor who wants its share to grow and yield profits. This is how many cases occur where the collaboration leads to a solid foundation for the business and significant growth leverage.

Payment amount varies

In many cases where businesses fail, they get very complicated when they do not have the ability to pay for the financing they have taken out and are required to pay heavy interest rates and penalties. In financing on the basis of turnover, the percentages are determined in advance and set aside each month of the turnover, so that the financing is not needed for another factor, which charges us a fixed amount regardless of how the business functioned.

No guarantee required

While perhaps the payments may be high when it comes to high revenue cycles, a distinct advantage of turnover-based financing is that there is no requirement for a guarantee, a huge advantage in the eyes of many because the customer does not risk money belonging to him but only future profits.

Commitment to share the information

In order to get the requested financing, the financing companies require the businesses to present their business details and extensive information about the business, expenses and income.

Little supervision compared to conventional financing

Because this method is relatively new, there is little supervision over it compared to banking supervision for example, so it is very important to check carefully and research the financing company or investor before committing to repayments.

Non-compliance with the terms of service

While in front of the bank there is a regulated index called credit rating, in front of companies and private investors the requirements can be different and not always suitable for small businesses. For example: a requirement for a turnover of $ 15,000 per month.

High Costs

While paying a variable and non-fixed amount can be a huge advantage in the method, it can also be a disadvantage. When the payment is adjusted in percentage to the level of income, the payment can reach a high amount when the business becomes profitable.