Where do you go first when you look for funding?
Traditionally Banks, Venture Capitalists, or angel investors have been the go-to options for most startups, but now the market scenario has changed. These funding options are not best suited for founders who want to avoid giving away equity, fixed hefty premium, and personal guarantees. Additionally, these options require a tedious, time-consuming, taxing process with the complexities of loan application and trade-offs. Unsurprisingly, many companies have turned to non-dilutive funding options such as Revenue-Based Financing, emerging as one of the most popular funding options in the last few years.
So let’s see what Revenue-Based Financing(RBF) is and how does it work?
What is Revenue-Based Financing?
Revenue-based financing is a solution that addresses above mentioned pain points of the founders by providing them with funding without diluting equity and facility of repayments on the percentage of monthly revenue. This make ensures that a business has enough capital to meet its inventory and marketing needs.
Here are some characteristics of revenue-based financing:
It is structured as a loan with a principal amount, a fixed fee of 4 to 10 percent, and no interest.
It does not require any equity dilution as the financing is provided against future revenue.
Based on your requirements the monthly repayment is made as a percentage of future revenue (usually 5% to 20%).
The maturity period of these types of loans depends upon the revenue generated, typically it is modeled for 4 to 9 months.
How Does the Loan Repayments Process Work in RBF?
Every entrepreneur believes that the company’s further growth can be ensured with an expansion, but it requires additional capital. However, the businessman can opt for a loan from banks and venture capitalists, but they have certain restrictions like the risk of equity dilution, fixed monthly installments, the need for impressive bank statements, guarantees, and so on. Thus, he determines to raise capital with a simple innovative financing model i.e. RBF (Revenue-Based Financing).
One of the most recognized brands offering RBF is Vedfin. VedFin values your brand and potentially more than just credit history and caters to the borrower who does not fit in the definition of the traditional banking system. Loan Customization is one of the best features that makes it unique. They provide the best offer as per the requirement and needs of the company.
RBF provides hassle-free and tailor-made debt in simple steps including:
- Filling out an online application form.
- After filling out the form, the data analytic and AI-enabled software will instantly review the data and generate a loan offer.
- The repayment process follows the simple procedure that the entrepreneur pays a small percentage of the net sales and the percentage is designed by the software based on the sales trends of a business.
Further, when the offer is made and accepted the borrowers needs to repay basis actual sales. Repayments are made as a percentage of monthly revenue which fluctuates night and day. If a company earns more it will repay the loan more quickly and on the other hand, slow months will slow down your repayments. So, in this case both the lender and borrower share the same risk and reward.
To know the best offer that suits you, fill out the application form now!