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Michele Romanow, who is a Canadian technology entrepreneur, television personality and venture capitalist, poses for a photo at her Toronto home on Sept. 26, 2016.Michelle Siu/The Globe and Mail

Dragons’ Den star Michele Romanow’s online financing company, Clearbanc, was born out of the frustrations she faced when launching her previous company, At the time, she didn’t want to get financing from the banks because they all wanted personal guarantees against her assets. Getting venture capital wasn’t ideal either, as she didn’t want to give up equity in the company. “It meant we had to run everything on a shoestring budget instead of getting to grow faster,” Ms. Romanow says.

Her experiences fuelled her to launch Clearbanc, which caters to e-commerce companies that want money for marketing. The financing company promises you can apply online “in minutes” and says money can arrive in entrepreneurs’ bank accounts in as little as 24 hours.

There’s no set repayment date, so if business is slow, entrepreneurs can take more time to pay. Ms. Romanow says applying has no impact on the owner’s or the business’s credit scores, and Clearbanc has no claim to the entrepreneurs’ personal assets. “This is the product I wished I had during the early days of my business,” she says.

Another selling point is the simple structure. “We make it really clear what your cost of capital is,” Ms. Romanow says. “We charge 6 per cent for our capital. If we give you $100,000, you owe us $106,000 at the end of that.” She says the fee is always 6 per cent and there are no extra fees charged on top.

There’s been a lot of excitement about the four-year-old company, and it raised US$120-million in venture capital to fund its growth last year. It all sounds great, but does Clearbanc live up to its lofty claims? We talked to Clearbanc customers and financing expert Andrew Zakharia to find out.

Getting set up

Applicants give Clearbanc read-only digital access to their business bank account and payment-processing accounts (for example Stripe, Square, Shopify or Paypal). They also need to give access to their online ad spending accounts, typically Google Ads or Facebook.

“We are looking for positive unit economics,” Ms. Romanow says. “If you are making really cool wooden iPhone cases, we’re just verifying you’re making those cases for $10, selling for $50 and it’s costing $10 in Facebook ads to sell a case.”

Ms. Romanow says that while you can get funded in as little as 24 hours, often business owners don’t remember the passwords to all their accounts and phone with a few questions, so it typically takes around a week to get set up.

Businesses need to have an average monthly revenue of at least $10,000 for the past six months, and must share their articles of incorporation. Ms. Romanow won’t reveal Clearbanc’s approval rate, but says “it’s pretty high.”

Mr. Zakharia, an accountant and founder of AZ Accounting Firm in Toronto, recently got a Clearbanc advance on behalf of one of his e-commerce clients.

“The whole process of connecting was very simple. It took 20 to 30 minutes to apply and I called to ask one question. It took three days to get approved and the money arrived five days after that.”

Michael McNaught, founder of RV rental marketplace RVezy, got an advance from Clearbanc last fall. “It was a very smooth, transparent and simple process to follow,” he says. “We got access to the funding within days of the application.”

Mr. McNaught says Clearbanc is a welcome alternative to banks, which are reluctant to lend to digital companies without physical assets. “We are then able to deploy those funds to directly fuel our growth without giving up any equity in the company.”

Clearbanc advances start at $10,000 and the largest one it has done was for $10-million, for a company that used it as an alternative to raising a Series B venture round. The money advanced is supposed to be put toward marketing, which includes buying online ads and hiring a marketing agency. The funds are deposited in the company’s bank account or added to a “Clearbanc debit card,” which can be used anywhere that accepts Visa or Mastercard.

While the product is currently available for e-commerce companies only, Ms. Romanow has plans for expansion. She says in addition to expanding internationally, Clearbanc is testing models to allow software-as-a-service companies to use the platform.

Payback time

The money Clearbanc gives out is considered a cash advance on future sales, not a loan. The funds are repaid by having the business’s payment processor route an agreed upon percentage of future revenues to Clearbanc until the advance and the fee are repaid. The payback rate ranges from 1 per cent to 20 per cent of sales.

Ms. Romanow told The Globe and Mail and other media outlets that the only cost is a flat fee of 6 per cent on the amount advanced, but it turns out that’s not always the case. While the majority of the businesses we spoke with paid a 6 per cent fee, one paid 8 per cent.

When asked for clarification, Ms. Romanow says: “Depending on how you use our capital, it’s 6 per cent to 12 per cent. It’s cheaper – 6 per cent – if you use our capital on digital ads like Facebook and Google because we have deep data science and understand the paybacks so we can offer lower fees. The vast majority of our fees are at the lower range.” The Clearbanc website doesn’t list the cost of an advance, but says the fee is “determined based on your business data.”

It’s important to understand that the 6-per-cent to 12-per-cent advance fee isn’t the same as the APR, or annual percentage rate you’d see on a traditional loan. That’s because the amount of time it takes to repay the Clearbanc advance could vary. Ms. Romanow says the businesses typically repay the advances in six to 12 months.

Things to watch out for

The e-commerce companies we spoke with that used Clearbanc were very enthusiastic about the service. Jesse Burnett, co-founder of Toronto footwear company TKEES, says he wouldn’t hesitate to get another advance from the company.

“Our ability to grow has been capped by our access to capital. So any time we have access to capital, I can free up capital for other places in the business,” he said. "2018 was a solid growth year for us and we’re looking to Clearbanc to accelerate that this year.”

Mr. Zakharia agrees that Clearbanc is a good option because it’s quick, there’s no personal credit check and the entrepreneur doesn’t need to put personal assets on the line. In terms of the cost, he says Clearbanc is reasonable when compared with other online lenders.

An 8-per-cent advance fee works out to the equivalent of a 27-per-cent APR if it’s paid back in six months with relatively consistent payments, Mr. Zakharia calculates. If paid back over one year, the APR would be approximately 14.5 per cent. This compares with the 20 per cent to 30 per cent or more that other online lenders typically charge, he says.

However, business owners should be aware there could be lower cost options. “I’d go first to a traditional bank followed by the BDC [Business Development Bank of Canada] if you want the lowest interest rate,” Mr. Zakharia says. “But if someone doesn’t want to involve their personal credit, then Clearbanc would be the best.”

Mr. Zakharia warns that businesses should only use a product like this that cuts into future revenues if the money is going to bring in additional sales. Using funds such as this to cover fixed costs could set a business up for cash-flow problems. “If you’re relying on this money to fund your operations, this could get you in trouble because you will have less cash available until this loan is paid off.”

The Globe and Mail Small Business Summit will give you practical ideas to grow your business. This year’s speakers include former Dragon’s Den star David Chilton, Kate Ross Leblanc from Saje Natural Wellness and celebrity chef Mark McEwan.