With a typical loan, you receive a set amount of money and pay a set amount back in regular installments. At the end of the loan's term, you've returned the principal, plus whatever interest you agreed to.
You borrow $1,000 from your brother for mime classes. You're going to pay him back over the course of a year, with 20% interest (20% interest; yikes...but, to be fair, your brother really hates mimes). You'll end up paying $1,200 by the end of the year, divided by 12 months, or payments of $100 a month. The key here is that you owe a set dollar amount per month. No matter what. Even if you can't earn anything from miming in the subway, you'll owe that $100 each month.
A revenue-based loan doesn't have a set dollar amount. Instead, you pay a predetermined proportion of your revenue to cover the loan. So...you don't promise your brother you'll pay $100 a month. Instead, you'll pay him back 25% of any money you earn from miming. If you work a street corner and get $12 thrown into your hat at the end of a performance, you'll hand over $3 to your brother as partial payment for the loan.
Revenue-based financing is helpful for growing businesses in cases where it isn't clear what a manageable debt load would be. The payments might start off small, when revenues are small, and get bigger as the company grows and is better able to handle high payments.
Some student loans are moving toward this model as well. Instead of a flat amount, the loan collects a certain percentage of income from the former student for a set period of time.
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Finance: What is a Savings & Loan v. a B...187 Views
finance a la shmoop what is a savings and loan versus a bank all right
savings and loan some savings and loans yeah it's a cleverly named you know like [Case of cash appears]
home loans car loans stuff like that banks issuer of credit cards and big
lines of credit for small to large business savings and loans the little
local retail gal banks the big fat cat corporate dude with big appetites and [Woman sitting behind savings and loans desk]
small fast red convertible cars with a stick-shift
savings and loans owned either by the lenders and borrowers of the savings and
loan itself you know kinda like a co-op or it can be set up like you know normal
ish corporation banks usually owned just by shareholders some are big like this
guy and that guy yeah and there's a whole bunch of other small fries too
savings and loans can loan up to 20% of their assets half of that for big [Savings and loans assets pie chart appears]
business half of that for small business loans at least these days and why did
delineation well because small business is default a whole lot more than big
businesses savings and loans are allowed to tap into the very liquid Federal Home
Loan Bank system Fannie Mae in the gang those guys and in order to do that ie [Man with savings and loans briefcase for head appears]
get cheaper money in return SNL's have to have at least 65% of their assets
invested in residential mortgages meaning most of their loans are you know
small home mortgages a lot of first-time buyers there all right well why is this
a thing well because the American Dream from a political perspective revolves in [A couple moving into house]
large part around owning your own home right not a bad idea the government has [Uncle Sam appears and boy walks away with pile of cash]
gone to a whole lot of effort to make it easy for the little guy to borrow money
and have his or her own little castle a little to start anyway banks those cold [Boy dancing outside castle]
cruel concrete walled things don't live under this same structure they don't get
to tap into the same cash fool reserves that SNL's do is not all the time but
they get to loan money a more or less wherever they want to loan money there's
way fewer strictures on banks than SNL's banks exist to make money for the
shareholders of the bank duh and they're financially Darwinian beasts [Charles Darwin beast appears in misty forest]
good at lending money that costs them low rates to rent and then they rent it
out at much higher rates to customers right and they live on that spread so
banks also get hot and heavy with other kinds of borrowings things like credit [Man and woman sitting in car looking at sunset]
card issuance like I think about how much money your credit cards charges and
so on they get a big piece of that and servicing a debt you know and wealth
and/or financial management services like they take a percent of year or so
for managing all your dough and to some extent merchants and investment banking
services as well you know for the big guys who are global so banks think big
loans big money big spreads wholesale savings and loans think small loans
small money small spreads retail banks mr. Potter savings and loans [Mr Potter appears]
George Bailey and the rest of the Bedford Falls gang did you hear that a
video editor just got his wings [Man grows wings]
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