Most companies need financing to accelerate their growth. But what is the most appropriate financing tool? For a company with a monthly recurring revenue (MRR) or an annual recurring revenue (ARR), different financing options seem possible. Fundraising, crowdfunding, business angels, traditional bank loans, grants... There are many financing tools that seem to be suitable for a digital company. Among them, Revenue Based Financing, a new financing system designed for digital companies, seems particularly appropriate.
What is FBR?
A new source of funding
RBF, or Revenue Based Financing, is an alternative financing method recommended in particular (but not exclusively) for companies with recurring revenues.
In this case, the system analyzes these revenues. For SaaS companies or companies with an MRR/ARR, Revenue Based Financing is therefore a perfectly suitable financing tool.
Revenue Based Financing comes from the United States and is currently very popular with tech start-ups. It was created in the 1980s by Arthur Fox, an American engineer. On a personal level, his invention has been successful: the internal rate of return of his two funds exceeds 50% and the invested capital is recovered in less than forty months.
The concept is innovative: an immediate advance of future revenues without diluting its capital. The advantage of using non-dilutive financing for a company is that it does not lose any part of its share capital when sending cash. The co-founder remains the sole leader of the strategic decisions and is not accountable to anyone.
Why is RBF a good fit for MRO/MRO companies?
The RBF is the most suitable financing tool for companies with an MRS/ARR.
Companies offer good visibility on their future cash flows. They are looking for short-term ROI investments such as marketing, communication or customer acquisition. The RBF then allows a cash advance to finance these needs and accelerate short-term growth.
This is why it is considered the right financing solution for SaaS software, e-commerce companies, subscriptions, service companies and more generally digital businesses.
FBR is also a " democratic " tool, accessible to any type of company, any industry and any size: the company does not need to have tangible assets, real estate, plants, or machinery. FBR does not require personal guarantees, loss of control or capital dilution.
This financing solution is quick and affordable compared to alternative financing options. A company with a stable MRO allows the investor to take less risk on their investment.
How do I know if my MRO / MRS company is eligible for FBR?
Accessing the RBF requires checking several boxes. Karmen's algorithm will thoroughly analyze the repayment capacity of your business model and then give its verdict. In case of a positive return, the funds are released and the company can start investing with its future revenues.
The criteria evaluated by Karmen
The three criteria required to assesseligibility for the KarmenFBR are:
- 9 months of commercial activity;
- 10 000 € of monthly income ;
- Company or entity based in France.
In addition, it is essential that the company seeking investment has growth prospects. The size of the market in which it is growing is taken into account. RBF investors or lenders look at specific indicators before accepting the cash transfer.
How do I apply for a loan for my MRO/ROI company with Karmen?
A process based on Open Banking
Signing up with Karmen is a quick and easy process. To determine if the company is eligible for FBR, Karmen uses open banking to analyze all metrics.
The European Services and Payments Directive, introduced in 2018 created the process of open banking. Open banking is a technology that involves sharing a company's financial data in a secure manner. Open banking has enabled the arrival of new, faster, transparent and flexible financing tools such as FBR.
Easy access to company performance
Open banking provides access to all financial ratios and performance indicators of a company. The lender, Karmen, analyzes the bank statements and the software used such as Google, Facebook Ads, Stripe, Qonto or others to have an accurate view of the company's organization.
Karmen can then reconstruct the indicators shown earlier.
A score awarded in less than 48 hours
After analyzing the company's overall performance, Karmen's scoring algorithm determines whether or not your company is eligible for FBR. Combined with an analysis by the credit teams, the verdict is reached and if eligible, your company receives the funds in less than 48 hours.
The steps in this process are very quick. Compared to raising capital or taking out a bank loan, the RDB process takes much less time. Karmen offers the ability to do all the steps online in less than 48 hours.
A commission proportional to income
The counterpart of this financing is a commission which is calculated proportionally to the present and future revenues of the company.
The amount of the monthly payment is directly defined according to the company's monthly financial results. The amount is changeable and flexible, which contrasts with the fixed monthly payments of traditional bank loans.
Generally, the recipient pays the investor back monthly between six and twelve months. It is possible to start the same financing process again after the loan is fully repaid.
Karmen is a simple financing solution for businesses with an ARR/MRR. RBF is an immediate cash advance of revenues.
Karmenallows a digital business to release cash in less than 48 hours. Compared to alternative means of financing, RBF is flexible, as repayment is made proportionally with the performance of the recipient. The recipient company repays the lender within 6 to 12 months.
The concept is simple: the recurring revenue company uses open banking to seamlessly transmit all of its financial data to the lender. Karmen's algorithm gives the company a score and defines whether it is eligible to receive funds or not. If eligible, the company can receive immediate cash in less than 48 hours.
Karmen recently raised €50 million in debt and aims to continue to support digital companies in their growth in 2023, despite a tangible macro-economic context.