A great way for businesses to access money is through revenue-based financing. It’s also sometimes referred to as revenue participation or revenue sharing funding.
Revenue financing is a loan to a company which is paid back through a royalty on the revenues. Typically this royalty is in the 2 to 5% range.
With revenue based capital, instead of selling ownership in your company you sell rights to a percentage of your company’s revenue for some period of time.
Funding is commonly available up to 8% of a company’s annual revenue, and loan amounts are available as high as $150,000.
To qualify a company must have current revenue. When your clients borrow money from a bank, they commit to repayment and commit to a specific rate of repayment. One of the benefits of revenue funding is that it provides a variable payment. If revenue goes down, your payment also goes down equivalent. This is extremely helpful in seasonal industries. Another difference compared to a bank: lenders want a personal guarantee and collateral.
If you default you may lose that collateral. Revenue based financing typically has no collateral requirement. There are also no personal guarantee requirements for the founder unlike bank loans. This funding can be used for many purposes including growth capital. And there are no restrictive covenants like bank loans.