Revenue Based Funding

Revenue-based funding is a loan that a business agrees to pay back over time by promising a chunk of its future revenue to the financier until a fixed dollar amount is reached.

Fixed Repayment Target : A loan with a set repayment goal that is attained over a number of years is called revenue-based financing.
Fixed Repayment Amount : Typically, the repayment amount for revenue-based financing is 1.5 to 2.5 times the loan's principal.
Flexible Repayment Periods : Repayment terms are variable with revenue-based financing; you can pay back the agreed-upon amount sooner if you can or later if you have to.
No Loss Of Equity : With revenue-based funding, business owners don’t sell equity or relinquish control.
More Hands-Off Approach Than Private Equity : While private equity investors are more hands-on than revenue-based finance companies, the latter are more collaborative with you.

When Do Companies Seek Revenue-Based Financing Options?

Revenue Based Financing appeals to:

Growth-stage companies that aim to expand their workforce by hiring more salespeople.
Companies in the process of introducing a new product to the market.
Companies that are about to embark on a significant marketing campaign.
Businesses with an established market presence, albeit not sizable enough to attract venture capital investments.
Owners who prefer not to provide personal guarantees for loans or dilute their equity by selling shares.

Revenue-based financing serves as an alternative to traditional debt financing and private equity investments.

Debt financing : Although debt financing allows business owners to maintain total control of their businesses, they occasionally must put up personal assets as security, and even then, the amount usually is extremely low.
Private Equity Financing : With private equity financing, founders often balk at losing total control of their company. However, they obtain their financing partner’s resources, network, and experience in exchange.

Pros & Cons Of Revenue Based Financing

Like any funding option, revenue-based financing has benefits and drawbacks to consider.

Pros

It is less expensive than alternatives : Revenue-based financing offers a more cost-effective solution compared to equity-based alternatives. Funding methods like angel investors and venture capitalists typically expect significantly higher returns, often 10 to 20 times more. In contrast, providers of revenue-based financing have a vested interest in your company's success because their monthly payments increase in tandem with your company's achievements.
You can maintain control : Revenue-based financing allows you to retain ownership and control of your company while preserving your equity. Unlike other funding options where investors may gain power through board seats or other means, revenue-based financing ensures that you have the sole authority to determine the direction of your business.
Monthly payments are flexible : Since monthly payments are based on revenue, slow months won’t hinder your ability to pay. Your expenses are correlated to your income and ought to be manageable with careful planning.
You don't have to personally guarantee the loan : Bank loans and other forms of financing necessitate personal guarantees, placing your assets at risk. Financing based on revenue does not require that dedication.
You'll raise funding more quickly : You won't have to make many pitches to get the funding you need with revenue-based financing. The majority of lenders will decide and issue credit within a month.

Cons

You must produce revenue : It is not appropriate for start-ups without a steady source of income.To qualify for this type of funding, it is essential for a business to generate revenue. Therefore, revenue-based financing is not suitable for start-ups that do not have a stable and consistent source of income.
Less money is available than with other financing options : While venture capitalists (VCs) are renowned for making substantial investments in businesses, revenue-based financing typically provides funding equivalent to approximately three to four months of a business's monthly recurring revenue.
Monthly payments are necessary : No matter what, you must make the monthly payment. Businesses short on cash should consider this factor.
This sector has minimal regulation: Because there’s little oversight of revenue-based financing, you must do careful research before entering any agreement, in order to avoid a predatory loan.

Revenue Based Financing Vs Bank Loans

Many businesses turn to banks for funding : However, in some cases, revenue-based financing offers a more advantageous alternative. Let's examine how one form of revenue-based financing, known as invoice factoring, compares to a bank loan.
Invoice factoring uses bills as collateral : You sell your outstanding invoices to an investor at a discounted rate, such as 80% of the total amount owed. This allows your business to quickly raise funds, and your customers make payments directly to the buyer instead of paying you for the goods sold.

Features & Benefits Of Revenue Based Financing

All you need to know about our Revenue Based Funding

Flexible Repayment : The repayment of revenue-based funding is based on a percentage of the business's revenue, which means that the amount of repayment will fluctuate based on the business's sales.
No Collateral Required : Revenue Based Funding (RBF) is an unsecured form of financing, which means that the borrower does not need to provide any collateral to obtain funding.
Quick Approval & Funding : The application process for RBF is typically straightforward, and the funds can be disbursed quickly, usually within a few days.
No Equity Dilution : Unlike equity financing, revenue-based funding does not require the borrower to give up a portion of their company in exchange for funds.

** Terms & conditions apply

Invoice Factoring Offers The Following Advantages

There is no debt or compounded interest : The average bank loan interest rate is between 2.5% to 7%, depending on the lender, loan type, collateral, and other factors. Invoice factoring contains no debt or compounded interest. It also requires no payments since you’re selling financiers the bills upfront.
Approval is fast : The approval comes more quickly with invoice factoring. A bank loan can take weeks or months, but if you have customers with good credit, the invoice factoring process can take just a few days.
Your credit score is not considered : With invoice factoring, your business credit or personal credit doesn’t matter because your customers pay the investor.
There is no capital limit : Bank loans will cap the cash available to you, but invoice factoring allows you to keep turning invoices into cash as long as you have creditworthy customers.

Bank loans require a borrower to pay a portion of the principal, along with interest, regularly until the total amount is paid. Bank loans also have some big benefits:

You don’t need reliable customers : Invoice factoring relies on the availability of invoices from an appropriate customer base. If you need more money than your invoices can provide, a bank loan might be the better option.
Banks provide many loan options : If you have good credit, you can often negotiate better interest rates and flexible payment schedules.
Bank loans keep customer data private : With a bank loan, you don’t have to give another entity your customer data, as invoice factoring requires.

Need Loans Assistance?

Connect with Our Experts Now!

Revenue based funding