Revenue financing (also known as royalty-based financing) refers to the use of future anticipated revenue streams as collateral to obtain a loan or other form of financing.
Revenue financing is a way for businesses or organizations to secure funding for projects or operations without having to use traditional forms of collateral, such as assets or property since revenue-based financing investors view a predictable and consistent or recurring revenue stream as an “asset” on which to secure the loan.
Lenders typically agree to provide capital to a business against a certain percentage of a company’s recurring gross revenue. Typically a pre-agreed percentage (e.g., 4%) of your monthly recurring revenue is accepted as payment, meaning payments are low in slow months and high in busier months.
Many revenue-based finance lenders will also use a multiple (i.e., 1.6x payback) instead of interest rates to determine how much you will pay in return for the funding.
Pros & Cons of Revenue Financing
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TIMIA Capital works with B2B SaaS and software-enabled
companies between $2 – $20 million ARR.