Misconceptions about Revenue-Based Financing
  • November 21, 2023
  • Seo Team
  • 0

Revenue-based financing has recently witnessed substantial traction in the financing world and has emerged as one of the most innovative ways of raising funds. RBF has an extensive feature of an easy and flexible repayment structure that depends on the performance of the business by sharing a percentage of future revenue. 

Revenue-based financing is a viable option for loans or finance that can provide distinct advantages and growth opportunities for a wide range of businesses. It is a non-dilutive form of financing through which you can raise funds from entities in exchange for a certain percentage of future income. Many businesses have availed the opportunity and explored the RBF while some are still in dilemma due to several myths and misconceptions. Misconceptions discourage business owners from opting for it. Let’s discuss the misconceptions associated with it and dig into the facts.

  1. RBF is only for startups – 

This is the biggest misconception that RBF is only for startups although RBF is designed to meet specific needs and objectives of the company. It can replace other financing options such as venture capital, bank loans, or angel investment because of its unique feature of providing credit based on future revenue. It doesn’t ask for the owner’s credit score or collateral of the company but provides credit centers on the business’s future revenue. It is a viable financing option for a wide range of businesses across various types, sizes, and stages of growth having scalable business models, strong growth potential, and consistent revenue streams.

2. RBF is expensive – 

This is the second misconception around RBF that it is too costly. While evaluating the RBF cost, it is crucial to evaluate the unique benefits and flexibility associated with RBF. It is an attractive and competitive funding option considering other factors that influence the cost of RBF – 

  1. Businesses with higher revenue can pay back the credit fast, potentially reducing overall cost. 
  2. If the perceived associated risk is higher can impact the cost associated with RBF. 
  3. The percentage of future revenue can be discussed while establishing a mutual agreement for repayment structure. 

3. RBF can create blockage for my business growth – 

Again, the RBF repayment structure is a great help for your business growth. As the repayment amount varies according to your business’s future revenue that will be less during low-revenue periods and high while high-revenue periods. It provides you the financial freedom to invest in growth initiatives like marketing, research, and development. It catalyzes your business growth if served strategically. It is free from the burden of heavy fixed monthly installments.  

4. Can lose control over my business – 

As mentioned, RBF is a non-dilutive form of financing which means it allows entrepreneurs to maintain full control and ownership. The focus of RBF fully depends on the potential growth rather than ownership stakes. It is an excellent option for those who don’t want to lose control of their business and want to continue to steer their business in their own designed direction without external interference. 

5. Only for businesses with poor credit – 

Where traditional businesses emphasize credit score, RBF considers the viability of the business model, the company’s growth, market size, profit margins, and market trends. It does not only validate the business’s creditworthiness but also works in certain situations. It creates a perfect balance between focus on the business’s potential growth and performance, making it a feasible option for financing.   

6. RBF is a last-resorting financing option – 

It is a belief that RBF is a last-resorting Financing Option however, it can be a strategic choice for the growing businesses. RBF stands out due to its unique and adaptive features of flexible repayment terms, non-dilutive nature, and focus on business growth over well-maintained credit scores. Nowadays, many companies consider RBF as their first choice over traditional financing options embracing its benefits. 

7. Data security is a question – 

Data security is an utmost priority for any business owner when it comes to sharing sensitive information, it is difficult to trust. Understanding the concern, RBF-providing firms like Vedfin take extensive measures to ensure data security and confidentiality. Vedfin AI-enabled database system is a Highly Encrypted AI-based system that has seamless and secure integration and protection for sharing log-in information. 

Before opting for RBF, it is crucial to understand its potential benefits and opportunities associated with it. It is an excellent financing option for your business at any stage without losing control over business, and staking your property. At Vedfin, we ensure data security with an easy funding process. To apply, click here.      

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