Many start-up companies and even small and medium enterprises (SMEs) are now looking to revenue-based financing (RBF) for raising capital instead of approaching venture funds or angel investors. If you wonder how the whole business of revenue-based financing works, read on.
What Is Revenue-Based Financing?
Revenue-based financing is a method for raising funds based on the ongoing revenues of the company. Investors who put in the money receive a percentage share of the enterprise’s gross revenues in exchange. Simply put, a company in need of funds can pledge a part of its yearly revenues in return for growth capital.
Typically, early-stage ventures and even SMEs nowadays prefer revenue-based finance. The most distinct advantage from their point of view is that they can access funds without pledging any form of collateral or equity dilution. For smaller businesses on the lookout for not significantly high in volume funds, revenue-based financing can be a good source to raise capital. That is because, for the quantum of fund requirements they seek, Venture Capitalists would not be too enthusiastic about looking into such proposals.
How Does Revenue Based Financing Work?
Specialist revenue-based financing firms do the due diligence by studying parameters like the borrower’s revenue, operating margins, scalability, cash flows, and growth potential. If the prospects look good, they lend the desired capital at a pre-decided interest rate or fee that they mutually agree upon.
What sets revenue-based financing apart from angel investors or a VC is how the funds are repaid. To put it simply, the borrower returns the principal and interest, or fee, from the revenues they earn during their business. The borrower agrees to share a part of their revenue with the lender.
The start-up ecosystem in India has seen a spurt of growth in India beginning the last year. With the devastating effects of the pandemic on the economy, many start-ups and SME’s have found it hard to raise capital through traditional means, as lenders are wary of investing in greenhorns in the volatile climate. However, many fintech companies, NBFCs, and portals have filled up that space and are willing to back brands and ventures that they trust.
Now We look at some of India’s top revenue-based financing companies.
1 – KredX
KredX, founded in 2015, has steadily grown to become the leading cash flow solutions provider. They provide businesses with unique cash flow solutions for their working capital needs.
For businesses’ revenue based financing requirements, KredX Offers unmatched advantages to borrowers. They can access seamless cash flow to scale their business. With cash flow underwriting, the businesses can avail growth capital based on monthly cash generated without diluting equity. They no longer have to wait till they dispose of the stock and clearance of invoices to take up new orders. Revenue-based financing with KredX provides healthy cash flow at all times to keep the cycle of orders and sales generation moving.
Businesses can focus on their growth and expansion without constantly worrying about a cash crunch. KredX offers ease of transactions with an easy digitalized process. The quick online onboarding and processing save the businesses valuable time.
2 – Klub
Klub is a fintech-based platform that provides revenue-based financing to online consumer businesses and eCommerce companies. They source their capital from institutional partners and individuals.
Founded in 2019, Klub’s investment platform utilizes financial innovation and deep data-driven analytics to provide growth capital to high-affinity brands in India.
3 – Getvantage
GetVantage, founded in 2019, is India & Southeast Asia’s foremost revenue-based financing fintech platform for eCommerce brands.
GetVantage makes data-driven investments to help digital businesses fulfil their growth potential. True to the revenue-based financing model, it doesn’t require businesses to give up equity or control via board seats or collaterals.
4 – Velocity
A newer entrant in the revenue-based financing field, Velocity supports new-age businesses in India. Founded in 2020, Velocity provides revenue-based financing to online businesses and eCommerce brands.
conclusion
Revenue-based financing is a comparatively new asset class in India with huge growth potential in the future. This financing model works very well for businesses that operate and earn their revenues online, including D2C, SaaS, and mobile applications.
These businesses value the flexibility provided by revenue-based financing. The predicted growth for the asset class has been tremendously fast-tracked due to the pandemic, with many start-ups opting to favour revenue based financing for their working capital requirements. If you need funds for your business enterprise, please click here.