Revenue Based Financing: The Dawn Of A New Era In Capital Acquisition

Revenue Based Financing: The Dawn Of A New Era In Capital Acquisition

Funding is an integral part of any business. The size of the business determines the mode of funding that will help raise the capital needed. While the traditional methods of funding are still at large across the globe, there is also an emergence of a new form of financing, called as Revenue Based Financing. 

Revenue Based Financing, also known as royalty-based financing, is a matter of convenience for the business as well as the investor. With respect to a business, there is no compulsion of providing collateral or issuing equity shares against the capital introduced by the investor.

This new form of financing is on the rise due to the increase in the number of SMEs globally. The traditional methods of acquiring capital through angel investors, venture capitalists, business loans, debentures help in raising large amounts of capital. However, these forms of financing require collaterals which usually SMEs are unable to provide. 

When these SMEs need to raise capital for their operations, they promise a certain amount of the revenue generated in exchange for the growth capital that they need. This is called Revenue Based Financing.

The Convenience Of Revenue Based Financing

Revenue Based Financing, also known as royalty-based financing, is a matter of convenience for the business as well as the investor. With respect to a business, there is no compulsion of providing collateral or issuing equity shares against the capital introduced by the investor.

On the other hand, an investor does not have to be bothered by the managing of the business and simply takes their mutually agreed-upon percentage of the revenue. Furthermore, the investor can opt for their choice of payment mode. It could be daily, bi-weekly or monthly, or even yearly. In some cases in the US, investors have also opted for daily payments.

Since the repayment of the capital is tied with a share in the revenue, there is no need for collateral. Whatever is the gross revenue that the venture makes over a period of time, the investor is certain of their capital’s repayment as per the agreed terms. Additionally, since there is no involvement from the investor’s side in the day-to-day operations of the business, the management is free to take their own decisions.

This enables SMEs to grow and meet their capital requirements while the investors simply take a share of the business carried out. This also means that if there is no business, the enterprise is not liable to pay a profit. It will simply be given to the investor when the business makes a profit in the next month.

Revenue Based Financing, also known as royalty-based financing, is a matter of convenience for the business as well as the investor. With respect to a business, there is no compulsion of providing collateral or issuing equity shares against the capital introduced by the investor.

The Working Of Revenue Based Financing

The functioning of RBF is quite simple. The lender provides the much-needed funds to the borrower and charges a certain amount as a fee or interest on the capital. This amount is returned to the lender during the agreed course of time as the business continues to operate as it was. While this might sound like something like an investment made by a venture capitalist or an angel investor, it has one slight difference. 

The difference is that there is no equity granted to the investor against the capital provided. Additionally, the investor has no control or say in the operations of the business as their concern is only with receipt of the amount promised to them. 

‍Revenue Based Financing With Kudos

With innovation at our helm, we at Kudos Finance hold capability for all forms of lending. With 50+ APIs that can also be customized as per your requirement, lending just becomes simple. When it comes to Revenue Based Financing, we provide you with an expert team that helps you harness the available data to its full potential. We also help you in acquiring the necessary funds through our trusted patrons. Additionally, we also help in partnering up with various financial institutions for capital with significant risk.

At Kudos, we believe in making lending democratized, convenient and accessible for all businesses. This has inspired us to be on the ascending curve of API innovation for our partners. With our APIs, we ensure that your process of lending gets faster and easier. In other words, Kudo’s APIs set you up for simple plug-and-play. 

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