For every early and mid-stage business ascertaining profitability and financial growth, one of the most indispensable factor is sufficiency of working capital. There are a couple of traditional financing options available like venture capitalists (angel investors) or Collateral based personal loan financing from banks to meet up the demand and grow the business. However, choosing the right financial option should be cautious because one wrong decision can lead the business into severe problems such as strict repayment schedules, debt traps, and impractical growth expectations.
The traditional ways of financing options involve several risk factors for startups and growing businesses which is a threat. Thus, the role of RBF (Revenue Based Financing) comes in. It involves the least amount of risk factors and offers flexible repayment without equity dilution. It helps increase flexibility and allows businesses to grow at their own pace.
How Does Revenue-Based Financing Differ From Venture Capital And Bank Loans?
Revenue-based financing loans are different from both equity and debt financing in the following ways-
- Venture capitalists’ funds do not set any repayment schedule but it dilutes the company’s shares from founders to VC at very low Market valuation . These funds are usually difficult to get as they are most interested in hyper-growth startups and seek at least 10 times the return on their investment. Getting VC funds makes sense for startups that require heavy investment in 0-to-1 bets like new market entries, technology development, etc. If you are getting your D2C business funded early from investors then it can leave you with significantly less stake in your company and hence lesser control.
- Banks are mostly concerned about getting their money back and making a small return. Securing loans from banks involves higher risk as the borrower needs to repay the loan within a fixed date and fixed amount every month on track without fail or any exceptions. Plus Bank have very high benchmakrs in terms to qualification to avail loans from them like you to be profitable, and seek personal guarantees and collateral towards the loan.
- It involves a long, tiring, and cumbersome process of securing VC funds and the offline method of seeking loans from banks.
- The process requires strong bank statements, better history, and enhanced market value.
Why Revenue-Based Financing?
Many businesses are inclining toward non-dilutive Revenue-based Financing to diverge from the above-mentioned complications. RBF is the best option as you get the investment to grow without losing any stakes in the company. This attractive method of capital generation has several benefits, including:
- Less Expensive than other alternatives- RBF is comparatively less expensive than other alternatives such as angel investors and banks because they ask for 10-20 times more in returns. Additionally, those who provide revenue-based financing are interested in your success since the amount of the monthly payments they receive increases as your company succeeds.
- Monthly Payments are Flexible- Since monthly payments in RBF are based on monthly revenue, slow months won’t hinder your ability to pay.
- You Can Maintain Control– You can maintain ownership and control of your company and keep your equity with revenue-based financing.
- You Don’t Have to Guarantee the Loan- Bank loans require you to guarantee a loan, putting your assets at risk, but RBF doesn’t need that commitment.
- You Can Raise Funding More Quickly- With RBF, you won’t have to make several efforts to attain the money you need. RBF secures you a loan within a week of filling out the application form.
Although, it is always suggested to consider a business’s long-term obligations before committing it to any form of financing. A loan is a loan, and that means repayment of it is a must. So, startups looking out for growth opportunities at a commendable pace can also approach authentic platforms like VedFin. VedFin looks after all types of financial needs of the business and helps to focus on sales. The AI-based software supports customizing debt for your needs. So, fill up the application form now and get connected with experts. Put our introduction from URL link here.