The Real Appeal of Non-Dilutive Financing
Your independence, your passion, and your perseverance helped you realize your dream of business ownership. You nurtured that vision by assembling a great team, and the market rewarded you with growth. You see new opportunities on the horizon, but to meet those exciting challenges, you need an infusion of cash. What are your options for raising additional capital?
As a minority or diverse-led organization, you face obstacles to debt financing. Loans from a traditional bank remain out of reach. These banks favor larger businesses with a strong credit history. Perhaps mistakes of the past or credit issues you encountered before successfully starting your business rear their ugly heads and become red lights to these financial institutions.
Business loans also require collateral or easily liquidatable assets. If your business assets do not cover the amount of the loan, you may need to list personal assets as collateral, putting both your business and personal assets at risk. Loans from friends and family helped kickstart your enterprise, but these individuals cannot provide the funds to finance expansion.
If you appear on the radar of venture capital groups and angel investors, you will encounter dilutive or equity financing. In these arrangements, you sell a percentage of your equity and often forfeit some control of your company to the investor. Independence fostered your initial success. Partnering with a venture group or an angel could put you in a situation of being yoked to someone who has a different vision for your business.
Good news! You can obtain your next round of funding and not dilute your initial investors. rather than forfeit any control of your company, you have a partner who aligns with your priorities. Revenue-based funding, RBF, (also known as royalty-based funding), offers a source of non-dilutive debt. In RBF, the lender and the owner agree to a predetermined total repayment amount as well as a percentage of gross revenues the company will remit to the lender monthly.
Business environments ebb and flow affecting revenue levels month to month. With RBF, payment amounts follow the level of revenues; a month of lower revenues requires a lower payment. Because payment amounts are tied to revenues, and lenders prefer to get paid back rather than later, the desires of both the lender and the company to grow the business are aligned. In addition, an RBF lender can offer counsel and serve as a mentor to the owner without exerting control.
In an RBF arrangement, revenues serve as collateral. Therefore, the business, as well as personal assets of the company, are protected. If you are an owner or a diverse-led business, and you have plans to expand your enterprise, contact the professionals at Founders First Capital Partners to learn how non-dilutive RBF can take your business to the next level.