A type of capital raising method in which investors receive a certain percentage of the company’s ongoing total gross revenues in exchange for providing capital. It is an alternative investment model to more conventional equity-based financing. Revenue-based financing is an attractive method of raising capital for companies. A company may successfully raise the required capital without sacrificing part of its equity or pledging part of its assets as collateral.
Revenue-based financing seems similar to debt financing because investors are entitled to regular repayments of their initially invested capital. However, revenue-based funding does not involve interest payments. Instead, the repayments are calculated using a particular multiple that results in returns that are higher than the initial investment. With revenue-based financing, a company is not required to provide collateral to investors.
Revenue Loan: Get Funding & Keep Control Of Your Company!
Revenue based financing allows owners to maintain full control of their companies. There is no transfer of an ownership stake in the company to investors. Retain equity and grow quickly because you can access funds within 24 hours.
Fast Funding, Cheaper Than Equity, Loan Repayments Are Flexible, Fast Growing Companies Settle Quicker
Financing For Companies That Are Already Generating Revenue
Revenue-based financing works only with companies that are generating significant revenues. A company that aims to resort to revenue-based financing must have strong gross margins to ensure their ability to repay the financier. Your company’s ability to generate consistent revenue is fundamental to obtaining this type of financing.
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With revenue based financing, finance provides will look at recurring revenue to determine how much they’re willing to lend you. Most set maximum loan amounts up to a third of the company’s annual recurring revenue or four to seven times their monthly recurring revenue. Repayment fees are usually between 6% to 12% of revenue, based on whether the funds are placed in predictable revenue generating activities or higher risk activities.
- Non-Dilutive
Founders and directors keep full control over their company. That’s crucial for new companies that have the potential for rapid growth but need a cash injection to help them get there. - No Personal Guarantee Needed
Founders and directors don’t need to put forward personal collateral against the loan, making it a less risky option than traditional debt financing. - Loan Payments Are Flexible
Repayments are based on the performance of your business. If you do well, you pay more. If you don’t do well, you pay less. - Fast-Growing Companies Settle Quicker
Companies that grow quicker than expected make repayments quicker too, so they end up giving up less revenue overall. - Cheaper Than Equity
Repayments aren’t usually as high as interest so it’s often a far cheaper option than securing your initial investment from angel investors or venture capital firms. - Fast Funding
New companies can secure revenue based financing within 24 hours. Meanwhile raising venture capital funding can take months and sometimes years. - Works Well With Other Funding Services
Revenue-based financing helps early-stage companies build traction, which makes other forms of funding more accessible, and less costly.
Revenue based financing is the perfect funding option if you don’t want to dilute your equity or spend time raising capital to invest in initiatives that are very likely to drive revenue. The ability to make repayments based on your monthly revenue means you can keep growing without worrying about whether you’ll meet the cost of a fixed loan.
So whether or not you plan to use other funding sources, any business owner looking to retain equity and grow quickly can benefit from using revenue based financing as part of their funding strategy.
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