A revenue-based finance (RBF) investment provides capital to a business by “selling” an ongoing percentage of a company’s future revenue to the investor. For simplicity, you can think of it as a revenue share type arrangement. The Investor gives capital to the company in exchange for a small percentage of gross revenues.
Flexible Pay Back
RBF lives as a hybrid of bank debt and venture capital. Instead of a typical bank loan which requires a business to pay a fixed interest payment, a revenue-based loan receives a percentage of revenues over a specific amount of time, allowing “interest” payments to fluctuate when a growing company has inconsistent cash-flows, lumpy or seasonal revenues.
For owners revenue-based loans are attractive because they don’t risk dilution and loss of control. The structure of RBF is often without having to agree to a valuation, which leaves management in control of the company and usually does not have restrictive covenants or require a board seat. RBF means you can grow without swinging for the fences.
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