Depending on your business revenue and model, there are a variety of ways you can obtain the capital you need, including bank loans, equity financing, and debt financing. For companies who have consistent, monthly revenue streams, revenue-based financing may be the best option.
How Does Revenue-Based Financing Work?
Revenue-based financing, also referred to as royalty-based financing, is different than a fixed loan. Instead of having fixed payments, royalty-based financing allows the business to make monthly payments in proportion to their revenue for that month.
The size of the payment is a percentage of the monthly revenue, which means that it fluctuates depending on how the company is doing. This means that if a company’s cash flow decreases one month, then their monthly payment will be smaller. Conversely, if that same company has a great month, their payment will be larger.
The amount that you can receive varies lender to lender, depending on the needs and qualifications of the company.
Who Qualifies for Revenue-Based Financing?
Revenue-based financing is perfect for SaaS businesses and other companies whose primary income is based on subscriptions. A consistent high monthly recurring revenue (MRR) along with high gross margins combine to qualify a business for a royalty-based loan.
Those qualifications almost exclusively apply to young tech companies, including telecom, tech services (TS), platform as a service (PaaS), and Software as a Service (SaaS) companies. Each of these business types are almost exclusively dependent on monthly recurring revenue from subscriptions.
Generally, companies who obtain revenue-based funding use it as a form of growth capital. For the most part, there are few stipulations for how you may use the money once you get it. This means that you could spend the money on a new marketing and sales campaign, develop a new product, or hire more staff, depending on your exact needs.
How Does It Compare to Other Types of Loans?
Compared to alternative funding options, revenue-based funds have significant upsides for companies with consistent MRR and profit margins.
On the one hand, small business loans from banks or other lenders typically involve collateral and a personal guarantee of repayment. The loan amount usually does not provide the amount of growth funding that the business actually needs. The interest rates are typically quite low, but obtaining one can prove to be difficult.
Venture capital is the most common way for tech companies to obtain capital. When venture capitalists believe in a business’s potential to scale quickly, they will invest immense amounts of money. However, they usually require you to give up some control (in the form of a board seat) and equity.
Conversely, revenue-based funds allow you to obtain significant capital without the hassle of a bank loan or giving up control and equity as with venture capital. For the majority of companies, revenue-based financing simply does not fit their business models. However, for tech companies with strong MRR and profit margins, revenue-based funds are easily the best type of financing.
At RevTek, we provide revenue-based financing that works for your company. We work with you to craft a repayment plan based on your MRR. By focusing on a percentage of future revenue, we avoid taking any control or equity in your company.
Our process and terms are simple, and you can obtain as much as $2 million in growth capital. You can use the capital to meet any of your business’s needs and improve your sales and marketing, expand your broadband network or broadband development, acquire new equipment through purchase or equipment leasing, or develop new services. Contact us today.
More flexible than the bank
We lend more to early-stage growth companies
Interest rates can be lower for bank loans than for revenue-based financing, but beyond small lines of credit, banks rarely lend enough for early-stage growth.
Bank loans contain complex covenants that can be difficult to navigate.
Monthly payments rise and fall with the ebb and flow of your revenue
Your monthly payments
Revenue loan rate
Monthly net cash receipts
Payments adjust to what your business can afford.
The payment rate is always below 10% to minimize the impact on your cash flow.
How fast you repay your loan depends on how fast your business grows
Our loans are normally repaid over 3–5 years, but if your revenue grows faster than planned, you can pay off the loan sooner.
Banks, on the other hand, can make it very difficult or expensive to terminate a loan early.
Far cheaper than equity
Our revenue-based financing uses a simple, transparent pricing model so you know your total commitment from day one
Revenue-based financing has two costs:
A repayment cap,
Minimal legal expenses (usually around $3,500),
The repayment cap is calculated as follows:
Cost of funds
The cap is usually 1.3–1.8x the amount borrowed, paid back over the length of the loan (usually 3–5 years).
Venture capital is not free—in fact it is vastly more expensive in the long run.
The equivalent “payment cap” for venture capital can be 10–20x the amount they invest in you—or more.
And initial legal fees and expenses can easily reach $30,000.
Funded More than 27 Growing Technology Entrepreneurs
As an intermediary, I have had the opportunity of working with the Principals regarding the financing needs of operating companies which I represent. They are very proficient at, being able to "Peel the Onion Back" in analyzing a particular financing need to come up with solutions that would meet the needs of my clients seeking financing. With it being a flat organization, you are always talking directly with the decision makers who are very responsive in their communication of: How to get to a deal or we do not see this fitting into our lending model.
Thunderbird Corporate Finance, LLC
RevTek Capital has evolved into more than a financial partner for our company. While their financial acumen is evident early on, the long term benefit RevTek Capital offers is the ability to dig into the operations side of your business and offer a fresh perspective or a new connection that can further your business. If you're getting started and want a big value add to your financing, RevTek Capital is an excellent choice.
WISPer Ventures / REVTEK Capital went to bat for us early on and has proven to be a great financial partner throughout our record historical growth. They went the extra mile to really understand our business early on, when other lenders simply wouldn’t.
In addition, they have proven to be much more than a direct financing source by helping us raise additional capital from outside sources to further accelerate our growth.
If you are an early stage company seeking growth capital with an objective to minimize dilution, WISPer/REVTEK is the perfect choice.