Revenue-Royalty Certificates Increase in Popularity
The practical application of revenue royalty certificates continues to expand.
Recently a small website needed to hire additional programers to work on an important new project that would dramatically improve it. The only obstacle in the way was a lack of cash to pay the hew hires. The founder looked at the traditional sources of capital for such projects but none were applicable. Since the business wasn’t profitable and as with most online ventures lacked collateral, banks wouldn’t touch it. Angel investors were also out of the picture because they would have wanted too much equity.
So what was the solution?
The founder came across a company that specializes in revenue-based funding. He then applied for a loan through its website and was pre-approved within minutes for $200,000. A couple of few weeks he had the actual cash in his bank account. With revenue based financing, the loan is repaid out of the top line. Typically it’s set in the 2 to 5% of net revenue range. When revenues go up so do the size of the payments; when they decline the payments follow.
Read the full article here: Revenue-Based Financing: The Better You Do, the Quicker You Pay
The company in the article charges a very high rate for its loans. Many small companies now find their own lenders and use a revenue royalty agreementto structure the deal.