Revenue-based financing can be used instead of a traditional loan for a small or growing business in need of capital. Revenue-based financing (RBF) is a solution where investors inject capital in return for a percentage of ongoing gross revenues. If you are an investor, revenue-based financing allow you to recieve revenue from a business without becoming an owner.
With this type of financing, the investor will receive larger payments if the revenue increases and smaller payments if the revenue decreases. If the business had opted for a traditional loan instead of RBF, they would have been forced to pay a fixed monthly payment regardless of the size of their revenue stream.
Contracts for revenue-based financing will usually stipulate that the payments to the investor must continue until the initial capital amount + a multiple has been repaid in full. The multiple is known as a cap.
Revenue-based financing as a possible solution for a businesses that needs to raise capital but where the owners of the business are unwilling to sell any equity portion of the business in exchange for an investment. Also, a traditional commercial lender such as a bank will often require a personal guarantee from the founders / owners of an early-stage business to ensure that they will repay the loan if the business defaults. With RBF, the founders / owners do not need to put personal assets such as their homes at risk.
Since RBF is a type of loan, the interest payments are tax deductible for the businesses in most jurisdictions. RBF loans are available online on sites such as internetlån24.se but it usually better to sit down face to face with the lender to negotiate the exact terms.
Revenue-based financing is normally only available for businesses that are already generating revenue. It is therefore not a common solution for new start-ups that need to go through a period of research and development or similar before they can start making revenue.