Revenue Loans

In the new economy it can be very difficult or impossible for a small business owner or entrepreneur to find capital to support the development of new ideas. Historically, small businesses and entrepreneurs have sought capital through "Angel" investors and traditional lending institutions like banks. Unfortunately, these common options are increasingly unavailable to even well established businesses. The revenue-based finance (revenue based financing) model - sometimes called royalty-based financing - is a financing plan that was introduced over 50 years ago and is gaining popularity today. The revenue based financing model provides unique benefits to both the small business and the investor.

The revenue based financing model is a non-dilutive system in that the small business owner does not lose any ownership in the company, in trade for the loan. This factor tends to be the most important and desirable feature of the revenue based financing funding system to small business owners. Additionally, the investors payout is capped to a specific amount that is paid out of the revenue the company earns within a specified time period. Business owners benefit by receiving investment dollars to build their business without losing ownership, and investors benefit by receiving payouts as soon as revenue is made by the business. The investor has purchased the rights to the revenue earned by the small business, but they have not purchased any other ownership of the business. The terms of the revenue based financing model are typically negotiated to allow some time for revenue to accrue before payouts need to be made, and typically there is a time period limitation and a payout limitation that is included in the negotiated terms.

This model is now used by a few investment firms across the nation. It is important to note that not all small businesses or investors will fit this funding model. Investors who agree to revenue based financing terms need to accept the 'capped' earning potential of the investment. Businesses with low profit margins and limited flexibility on pricing should careful negotiate the terms of any revenue based financing financing plan to make sure their revenue stream can support a regular deduction and payout to investors.

The revenue based financing model can provide growth capital for many of today's information-processing or web-service businesses, and should be considered a viable source of funding in this credit-restrictive economy.

How to find capital to grow your business
Many small businesses find themselves in a difficult situation through their own success. They have had some success and have grown to a certain size, and then struggle to find the investment required to step up to the next level. In the current economic climate, bank loans are hard to come by, even for profitable companies! And many small businesses struggle to find the collateral to secure a bank loan. Angel investors aren't interested if a company is too established, and venture capitalists usually won't bother with anything that isn't going to make them billions in the near future.

One way to finance growth is to trade an equity stake in the company for cash. Usually this is achieved by handing over a portion of the shares in the company to the investors in return for the required investment, which then dilutes the value of stock held by the existing shareholders. This form of investment leverages the long-term performance and growth of the company for a short-term capital investment. Classically, equity investment is used to pay for the development of a new product and the desired sales strategy for it, and can be seen as trading one debt (development costs) for another (diluted equity).

The other method of getting finance is the non-dilutive method of revenue based financing, sometimes called royalty-based finance, or revenue based financing. revenue based financing leverages a part of the increased profits for the capital investment and so there is no dilution of the company stock. This works best in a situation where a company has a product in market and sales strategy, but doesn't have the capital to invest in that strategy. By bringing in the necessary investment, the company uses the money to increase sales of the product and increases its revenues faster than it could without the investment. revenue based financing is well suited to businesses who provide an online service or who process information between two parties.

Which of these funding options a business should pursue depends on many factors, but at the bottom level it is a decision between whether revenue based financing, which costs a portion of the company revenue, or equity financing, which costs a part of the company, is the most expensive to the company, and which the management is most willing to give up.

Growing your small business with Revenue Based Finance
Sometimes a small business runs into a financing wall where it seems there are no options, and there is no way to move the business to the next level. A situation like this can cause real damage to a growing business. Without the funds required to buy equipment, hire staff or expand the business, the wheels stop turning and the business can grind to a halt. This could be a gloomy situation, however there just may very well be a proverbial light shining at the end of the tunnel. Before submitting to despair, take heart in the fact that there is a possible solution to this situation. An innovative new financing model, Revenue Based Financing, may be able to turn things back to the positive, and provide the growth capital you need.

Revenue Based Financing sometimes called Royalty Based Financing or revenue based financing, is a unique financing option that could be the solution for many businesses in need of cash. revenue based financing offers a more flexible loan alternative by allowing businesses to borrow money using future revenues as collateral. The loan terms will vary, and usually the payment is a percentage of the gross income of the businesses revenues up to a certain capped amount. The revenue based financing loan terms between the lender and the small business owner can vary a lot depending on many factors. This is an interesting and viable option and worth investigating.

In addition to offering a life line for many small businesses, revenue based financing is an attractive option as a loan in itself, mostly because it is non-dilutive in nature. Instead of equity, revenues are exchanged for growth capital, which prevents dilution of the business ownership. This differs greatly from a standard equity (dilutive) financing, where the business equity becomes diluted. Considering this, revenue based financing is often best suited for young and newly established businesses that have their product ready and a solid business plan, but are unable to move forward quickly due to lack of funding. These businesses are often in the stage where the business is being fine tuned, and growth is a matter of building infrastructure. This is the time when revenue based financing should be considered as a practical funding source, offering advantages over some more conventional forms of financing.