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.