Revenue-Based Financing – The Best Way To Achieve Business Growth

Growth and expansion are indispensable goals of every business owner. Without timely expansion, a business cannot achieve its full potential in terms of production capacity, market share, and earnings. While every entrepreneur acknowledges the importance of growth and expansion, not many are able to implement it on time due to several reasons. Lack of a reliable growth plan and inaccessibility to cash are among the top reasons why many businesses are unable to expand their scale of operation, product portfolio or quality of service offerings.  That said, alternative financing options such as revenue-based financing (RBF) are rapidly emerging as the go-to option to fund business growth without increasing liabilities. On that note, let us dissect why opting for revenue-based financing could be the best means to achieve your business’s growth objective!

A Sneak-Peek Into Revenue-Based Financing

This financing option allows businesses to utilise their past and estimated revenue to gain access to funds. Under this funding method, lenders agree to offer capital to businesses in exchange for a percentage of their total earnings. But what makes it special, you ask? When you opt for revenue-based financing, you do not need to provide any collateral. Hence, the fear of losing an integral asset is out of the question. Furthermore, this particular financing option is a better alternative to debt capital with no fixed EMI obligations and can also be availed without the business owners letting go of some part of business - as is the case with equity capital.           Above all, when you choose to access RBF through a leading fintech company such as KredX, the documentation and associated processes are quick and simple.  As an entrepreneur, you should note that this business model works seamlessly for firms that have a track record of generating adequate revenue and growth. However, that does not necessarily mean that businesses with only a sizable turnover can enjoy the perks accompanying RBF. Today, businesses with as little as Rs.10 lakh monthly revenues can reach out to fintech companies like KredX for RBF. 

So, how exactly does RBF work? Here’s a look!

The entire process can be divided into the following pointers. Check them out to gain more clarity.
  • Sign up on KredX’s web portal.
  • Upload/submit essential documents such as proof of your business, past and expected revenue statements, etc.
  • Once the documents are verified, a thorough credit analysis will be carried out.
  • Typically, lenders factor in a company's revenue record for the last 12 months. However, based on the estimated earnings period, the analysis can factor in your monthly, quarterly or annual earnings.
  • Post analysis, you are likely to be informed about the sanctioned sum of money.
  • The repayment structure and payment percentage will be decided.
  • Once both parties agree to the accompanying terms and conditions, the sanctioned amount will be disbursed. 
After receiving the fund, you can use the amount to upgrade your operations, purchase the latest equipment, expand your production scale, or your business division even further. Generally, RBF comes with a flexible repayment structure wherein businesses can opt for monthly or quarterly payouts at a pre-fixed percentage of their earnings. It is true that revenue-based financing manifests the characteristics of both debt and equity financing. However, they are not entirely the same, and some are better than others. 

Difference Between Revenue-Based Financing And Its Alternatives

Multiple alternative funding options exist in the market today. But why should you set your eyes only on revenue-based finance? To gain an insight into this aspect, check out the key differences between RBF and other popular alternative financing means prevalent. Here’s a brief take to help you navigate through the same –
  • RBF Vs Debt Financing

Revenue-based Financing  Debt Financing
    No fixed EMI obligations but only a percentage of the monthly earnings. Pay more during a good month and pay less during a not-so-good month.     Fixed EMI obligations
Payment is usually computed by using a fixed multiple of the estimated revenue. The same is levied on the sanctioned amount at a fixed/floating rate based on the prevailing rate or per the investor's decision.
  • RBF Vs Equity-based Financing

Revenue-based Financing Equity-based Financing
In revenue-based financing, the ownership of entrepreneurs does not get diluted at any time.  In equity-based capital financing, there is a transfer of ownership stake from business owners to investors. 
Business owners do  not have to offer the lender      voting rights or a seat at the board. Investors secure a seat on the company board and/or voting rights. 
  • RBF Vs Bank Loans

Revenue Based Financing Bank Loans
In RBF, businesses are not required to provide collateral. Instead, the amount of capital raised depends on the firm's estimated revenue. Based on the type of loan, banks might ask to provide collateral. Also, the sanctioned amount depends on the value of the pledged asset.
Seasonal businesses get the opportunity to repay the amount at flexible terms and in customized      percentages. Banks require borrowers to repay loans in fixed amounts at pre-determined intervals.

Bottom Line

Collectively, revenue-based financing is among the best options to raise growth capital. Its business-centric features and repayment flexibility makes it an effective financing tool for today's entrepreneurs. That said, businesses should choose their lenders smartly to make the entire process of raising growth capital smooth and painless.