Being a successful entrepreneur, you keep innovating secure ways to keep the proper cash flow while mitigating risk factors and maintaining control. Managing the volatility of business and raising funds is one of the crucial responsibilities of a successful entrepreneur. You may consider traditional financing options like angel investments, venture capital, or bank loans, but that would always keep you in fear of ownership or equity dilution. Here, we introduce one emerging smart non-dilutive funding option that warrants serious consideration – Revenue-Based Financing (RBF).
What is Non-Dilutive Funding?
Non-dilutive funding refers to the capital you can raise without losing your company’s ownership or equity. It is a discrepancy to VC investments that requires transferring a percentage of ownership against obtaining operating funds. Revenue-based financing is an apt example of non-dilutive funding.
Non-dilutive funding allows you to access funds based on other business considerations. It is a solid alternative funding option for startup founders and small-to-medium-sized business owners seeking funds without giving up equity or business ownership.
Non-dilutive Funding vs. dilutive Funding
Dilutive funding refers to access capital against some ownership and control of your business. In this type of funding, companies provide future earnings to investors with some control of the company.
However, non-dilutive funding includes loans, grants, and revenue-based financing and excludes stock sales. The best part is that companies still have control business control, which makes it popular for start-ups.
In dilutive funding, if you don’t repay funds results in equity dilution or loss. However, repayment is typically necessary for non-dilutive financing, but entrepreneurs have complete control over the company and revenue.
Pros and Cons of non-dilutive funding:
Let’s understand how non-dilutive financing can benefit your business and in what condition you should not opt for it.
Pros –
- The owner doesn’t have to sell a portion of the company.
- Startups can acquire funds easily without putting up personal collateral or demonstrating reedit worthiness.
- Businesses can use their predictable revenue to leverage credit.
- Non-dilutive funding has a repayment schedule, suitable for growing business.
- It is more affordable than the cost of selling stock.
Cons –
Non-dilutive funding doesn’t have any direct loss for your business in terms of finance, but may be challenging as below –
- Startups may get less amount of required funds as it is based on your predictable revenue.
- Your plan and projection should be clear and precise or difficult to qualify for non-dilutive funding.
Can you Opt for non-dilutive funding?
Non-dilutive funding is preferable to traditional forms of funding for the marketplace, subscription-based services, eCommerce, business funding for startups, and SaaS. It also involves entering a new market, delaying the next round of investment, digital advertising campaigns, or launching a new product.
Types: You can access short-term loans offered by credit unions, banks, online lenders, and non-banking financial institutions. These loans are designed to provide instant money but require quicker repayment with comparatively higher interest rates than long-term loans.
Venture Debt: Venture debt is a type of non-dilutive funding option available to firms only with venture capital backing. Small businesses or start-ups have the choice to access funds as opposed to giving up company stock. Private equity organizations, hedge funds, or banks work in collaboration with venture capital firms to fund start-ups.
Crowding: Crowdfunding is an innovative method of raising funds through which start-ups can raise funds from many people in return for benefits like discounts or access to innovative features.
Merchant Cash Advances: Merchant Cash Advances (MCA) is a good option for a company that finds it difficult to qualify for conventional financing but is confident enough to generate future revenue. In this method, funds can be repaid with a percentage of the borrower’s future sale.
Grants: Providing a subscription is one of the best ways to monetize the app. In this method, users pay recurring fees to access the content or app feature.
Licensing and Royalty: Licensing and Royalty is also an alternative non-dilutive funding option. Through this, businesses can use royalty finance for their products or technology.
Revenue-Based Financing: Revenue-based Financing is one of the leading non-dilutive funding options, offering a flexible payback structure. RBF is popular among start-ups, digital businesses, and software businesses for their business expenses including product purchases, advertising campaigns, and employee salaries.
At Vedfin, you can access funds easily without giving up any equity and ownership in a short pane of time through AI-based models. The funds that you can repay only via some percentage of the future revenue. Apply Now.