Revenue Based Funding
Non-Dilutive Growth Capital
What is Revenue Based Funding?
Revenue-based financing, also known as royalty-based financing, is a method of raising capital for a business from investors who receive a percentage of the enterprise’s ongoing gross revenues in exchange for the money they invested. In a revenue-based financing investment, investors receive a regular share of the businesses income until a predetermined amount has been paid.
There are a variety of reasons a company would choose Revenue-Based Finance over more traditional financial products. Revenue-Based Financing has a faster turnaround time, which lends well to expansion or rapid scaling. Some businesses use their funds to bring on new employees to handle an increase in volume, or to buy new equipment to help them take on big jobs. Some need to make expensive repairs quickly in order to continue operating their business, and some simply prefer the shorter payment terms and the flexibility that Revenue-Based Financing provides.
How does Revenue Based Funding work?
Loans have an interest rate, and the amount paid is dependent on how quickly it is paid in full. The payment is generally fixed for the entirety of the loan. This is not true of Revenue-Based Finance. For this product, the daily or weekly debit amount is flexible, as you are paying only taking a percentage of the business’s overall sales. So if your revenue is down, you can adjust your payment amount accordingly.
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Why you should take Revenue Based Funding
The revenue-based financing model is a pioneering asset class in India that took off during the pandemic as start-ups struggled drastically to raise funds. Revenue-based financing is a hybrid capital instrument that combines the best of both equity- and debt-based financing options.
When opting for a revenue-based financing model, borrowers must remember a few things, including-
- RBF is a debt offered to start-ups and SMEs but is not as structured as a loan.
- In this, investors get a fixed share of the business’ revenues on a monthly basis. This signifies that if a company earns higher income a month, the investor simultaneously gets back a greater share. This repayment is inclusive of the principal and returns decided upon during the investment time.
- To access revenue-based financing, a company does not have to dilute equity to meet working capital requirements.
- There is no need to pledge collateral as securities for revenue-based financing, making it a less risky proposition for borrowers.
- For businesses that can carefully assess and predict their revenue flow, revenue-based financing is highly attractive. Though a start-up may not be absolutely profitable, they do have a regular stream of income.
- With RBF, entrepreneurs can raise funds anywhere between Rs 5 lakh and Rs 15 crore. Borrowers will have to repay the debt with a profit share ranging between 2% and 15% instead of paying EMIs or equity dilution.
- RBF usually comes with a repayment tenure of up to 12 months. Companies can repay the borrowed sum + revenue share within this period or earlier, depending on their revenue scale.
The Fundraising Process We Follow
Benefits of Revenue Based Funding
No Dilution of Equity
Unlike traditional financing methods, RBF does not require business owners to give up ownership stakes in their company. This means that entrepreneurs can secure capital without relinquishing control or sacrificing future potential.
Flexible Repayment Structure
RBF payments are directly tied to a business’s revenue. During slow periods, the payments adjust accordingly, alleviating the pressure of fixed monthly payments that can strain cash flow. This flexibility allows businesses to manage their finances more effectively.
Fast and Accessible Funding
Revenue based financing can be obtained relatively quickly compared to traditional loans, which often involve lengthy application processes. This speed can be crucial for businesses in need of immediate capital to seize growth opportunities or overcome financial challenges.
Support for Growth Initiatives
RBF investors often provide additional value beyond capital. They may offer strategic advice, industry connections, and expertise to help businesses grow and succeed.
How We Offer
We Look For
Capital Destined to spur Growth
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