When an entrepreneur starts his business, he has a dream to achieve something big and for achieving something he should have sufficient capital. One way of raising capital can be securing finance, but it is also not always easy to cover startup costs or business expansion expenses. Sometimes, banks are also hesitant to lend and if they lend they might demand a personal loan guarantee from promoters. Business loans require consistent repayments. Your revenue does not matter to them and this often proves difficult for growing companies. If you can find venture capitalists or angel investors, they seek significant returns and a hefty slice of equity.
This creates a challenging situation for the entrepreneur. Without losing equity or acquiring crippling debt, how can you find funding for your business to achieve your dream valuation?
Revenue-based financing might fill the void for businesses searching for a happy medium between the world of conventional bank loans and the high-stakes game of private equity investments.
What is Revenue-Based Financing?
Revenue-based funding is a loan that a business agrees to pay back over time until a fixed amount is reached by promising a chunk of its future revenue to the financier.
Precisely, revenue-based financing is not handled the same by every financing firm. Everyone does it a little bit differently, but the motive of revenue-based financing is to provide a sum of money, which the company agrees to pay back as a percentage of their revenue. If a company grows faster than expected, they pay us in a shorter time and this is the key to the whole thing. The company grows faster as RBF firms push a business to the last mile and achieve your dream.
Real-World Benefits of Revenue-Based financing
Many businesses, especially those in the digital space like eCommerce companies, digital sales platforms, and app-based businesses struggle with limited access to funding through traditional avenues. With RBF, these companies are no longer playing catch-up; with more established platforms they can compete on a level playing field and achieve their dreams valuation. Significantly, increasing MRR or Monthly Recurring Revenue(These monthly payments are equal to an agreed percentage of monthly recurring revenue) drives revenue to the business. RBF gives its founders quick access to financing which can be paid in shorter time frames than traditional financing options. To take the advantage of the higher sales volumes allows the business to order additional stock and inventory around specific dates or periods.
Why Revenue-Based Financing is a Great Fit?
RBF could be a more flexible, fairer option for funding than traditional business loans for start-ups looking to finance growth and move toward a more stable financial landscape. By choosing a revenue-based financing option, businesses can benefit with –
1. The greater flexibility of the performance-linked repayments
2. Maintain a greater degree of control over ownership
3. Scale repayments based on business performance
4. Take advantage of no equity
5. No personal guarantees
6. No fixed payback schedules
7. Access funding more quickly
Revenue-based financing is becoming increasingly popular with businesses of all sizes, particularly eCommerce businesses looking to fund next-stage growth. VedFin is a one stop solution to provide the flexible, reliable funding and flexible repayment options. It offers plenty of opportunities to fund ambitious marketing and targeted advertising campaigns to make most businesses shift to online shopping channels.