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Tag: small business funding

Is Revenue Based Finance Right For You?

Not all types of loans are good for your business. Just as doctors prescribe drugs for an illness, lenders compare funds with reasons for borrowing. The reason is to ensure that the funds are used properly so that the borrower can achieve the desired objectives.

Revenue-based financing is a type of financial structure (commonly referred to as investment) that aims to fund the proceeds of a future subscription to a percentage of current gross income while paying financing (investment) plus a multiplier to investors.

This type of funding is suitable for developing companies that generate high monthly recurring income. These companies may not be eligible for traditional bank loans because there are no assets to secure loans.

You can also take the help of leading revenue based financing agency to get business loans.

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This type of funding is ideal for initial growth and high-growth companies that need additional funding to grow. Monthly loan payments are based on a percentage of the customer's gross monthly income, similar to royalties. When sales decline, you make payments and vice versa.

The term of the financing depends on the time point, depending on customer demand, from a predetermined amount of payment generally 6 to 60 months. Some RBF investors offer modified short-term financing from 3 to 12 months with fixed monthly payments and fixed terms.

The main qualification requirements for potential customers are monthly recurring income (MRR) generation, high gross margins, low customer/income loss rates, and customer acquisition costs, to name a few.

As a rule, RBF investors/lenders do not need guarantees or personal guarantees. Instead, they depend on the borrower's financial results. However, there are times when personal collateral may be needed, especially when new credit companies are established or are financially weak.

Some RBF investors may need to register the first promise of the borrower's assets, such as patents, domain names, and trademarks. This is usually done to ensure that debt is classified as senior debt in the case of foreclosure.

Borrowers use the easy access to capital without reducing equity or giving up personal or business security. Funding is expensive, but it is necessary to consider the benefits and circumstances of the borrower.