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Revenue Based Financing and Bank Lending: What is it?
Revenue Based Financing, definition
RBF is a financing solution non-dilutiveThe RBF is a financing solution for digital companies (especially those with recurring revenues) that offers a financing solution by analyzing company metrics (acquisition costs, estimated future revenues, ...).
The RBF is in fact a cash advance, allowing the release of capital for the growth of the company in a non-dilutive way.
How to subscribe to an FBR solution?
The process for obtaining an FBR is quite simple .
Fast and easy data analysis
To know if you are eligible or not for funding, a score is assigned to you based on your company profile and performance. To do this, you must provide access to your data (commercial (Shopify, Google Ads, Prestashop, etc) and financial (bank accounts, Stripe, etc)). All this data is then analyzed by an algorithm to best evaluate your current and future situation.
If the answer is positive, you will receive a financing proposal within 48 hours!
Transparent reimbursement
In return, the company that funds the FBR takes a commission, usuallybetween 6-9% of the amount funded but this allows you to remain the sole decision maker for your business! This amount will always be transparent and without hidden fees. You can renew the operation as much as you wish, as you grow. The RBF allows you to grow your business at your own pace.
What is a bank loan and how do I get one?
The professional credit also called business loan is a financing granted by banks to companies and professionals. It is a credit that is granted under very specific conditions. The project must meet a certain number of criteria in order to meet the banker's expectations.
The purpose of business credit is to help companies develop and boost their growth. Different types of business credit can be used, including bank loans: a loan repayable by the company according to monthly instalments fixed in advance by the bank.
Generally, this type of credit, intended for professionals, is private equity advantageous and less restrictive than a classic credit intended for private individuals. Among the different classic bank loans, we can mention the amortizable loan, the credit reserve or permanent credit, and the credit repurchase.
What are the advantages and disadvantages of FBR?
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The benefits of Revenue Based Financing
Fast approval time for the funding application
FBR is the fastest financing solution, with a turnaround time of about 48 hours. In general, it takes several weeks or even months for a loan application to be approved. This is mainly due to the internal processes of traditional banks, but also to the large amount of documentation required, which must then be reviewed in detail.
No KPIs (Key Performance Indicators) and little documentation required
To obtain approval for an FBR, simply submit an online application and then connect your various accounts:
- Your subscription management solutions (Stripe, Chargebee)
- Your CRM (SalesForce, HUbspot, ...)
- Your online advertising campaign solutions (Google Ads, Facebook Ads, ...)
Bank feeds are read-only to ensure the security of your data. Thus, access to the RBF does not require profitability criteria or exponential growth forecasts.
No warranty required
You don't need a guarantee or postage to subscribe to FBR. Only the data about your business matters in predicting your future performance.
No interference or restrictions on the use of the amount
Under RBF, you are free to use your funds without any restrictions. There are no banking regulations or issuing mandates in income-based financing. Therefore, you can use the funds for any project you choose, depending on your day-to-day needs.
Flexible financing
Revenue Based Financing is based directly on the company's revenues. Thus, the amounts given will be proportional to the company's performance. Concretely, if your sales drop during a certain month, your royalties will be reduced. Conversely, if your sales increase the following month, the amounts to be donated will increase in the same way.
The disadvantages of Revenue Based Financing
Financing not available to non-revenue businesses
The RBF is only available for companies that already have recurring revenue. This is because to assign a score to the company, the algorithm analyzes its financial data such as MRR and ARR.
Proportional funding
The amount of potential funding islimitedby the revenue currently generated by the business.
Cash refund
RBF funding is repaid through revenue sharing. You will share a portion of your revenue with the RBF platform until the agreed upon amount is repaid. This means that RBF funding must be repaid in cash unlike fundraising (venture capital) funding where investors get equity in your company instead.
What are the advantages and disadvantages of a bank loan?
The advantages of a bank loan
Available for companies with no revenues
A business can apply for a bank loan before generating its first revenues. The conditions will often be very demanding, but if the founders can bring in part of the required amount in equity, they can usually access a bank loan.
The bank loan is therefore available for all types of companies , whereas the RBF is particularly aimed at digital companies (e-commerce, SaaS, etc.)
The disadvantages of the bank loan
Long time to approval of the application
A bank loan requires a lot of time and energy to try to obtain. It is indeed necessary to prepare yourself to gather as much information and forecasts as possible to make your project credible.
No flexibility
With a bank loan, there is not much room for flexibility and you will be committed no matter what. Even if your income does not meet your expectations. In the case of a business start-up, the loan generally varies from 5 to 7 years and is most often repaid over 7 years. The longer the term, the higher the interest rate.
How to choose between the bank loan and the FBR?
To choose FBR, your company must meet the following criteria:
1. Your revenues are recurring: If you do not have stable monthly revenues, a bank loan will be more suitable because an FBR platform must be able to accurately assess and forecast the financial performance of your business. This is to your advantage, as it allows your financial partner to offer repayment terms that fit your company's revenue cycle.
2. You need working capital to grow your business: Often you have to spend money to make money (inventory, advertising expenses, staff, etc.).
Karmen offers you to obtain your financing offer in less than 48h. On your side, it will only take you a few minutes to answer a few questions about your business and then connect Karmen to your various tools so that Karmen can make a proposal that is as close as possible to your needs.
