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Revenue Based Lending and Its Benefits


Revenue lending gives capital to businessmen and owners, for their part, pay a current percentage of their company's upcoming revenues.


In addition, revenue financing bears no relation with ownership. With this, an owner gets access to cash in the absence of investor control and he/she does not have to pay the loan back using personal assets that the banks usually require. Businesses that have been generating revenues can acquire revenue based lending because they do not need to offer hard assets which are typically a requirement for getting bank loans.


Moreover, this type of financing is often described as sitting in the middle of a bank loan, which normally needs assets or a collateral, and angel investment or venture capital, which covers the equity part of the company that is up for sale to replace the investment.


With the RBF investment, interest paid investors often receive a minor equity warrant rather than receiving an ownership stake in the company upfront. Such an investment also does not require valuation exercise, or else funding of the loan amount through the personal assets of its founder. 


RBF investors or lenders consider things quite differently than banks. They will lend according to the strengths of the business, as against businessmen entering a bank. The bank is going to take all, including their own credit, into account prior to lending them the money in exchange for 100% of that amount in collateral.


Business owners can enjoy significant benefits through revenue based lending. On the other hand, the nature of such requires these two business' attributes – Again, it has to generate revenue since payment is based on that revenue. Then, in order to put up with the percentage of revenue to pay the loan, the gross margins of the company must ideally be strong.


RBF investors and the companies share a common interest. The growth in revenue is beneficial to both of them, but the two parties suffer as well when the revenue is weak. This is unlike the usual bank loan calculator that requires a monthly amortization set in the duration of the loan without considering the revenue. Revenue based lending offers convenience in dealing with difficult months by monitoring the revenue for the repayment.


Very often, the RBF is more costly compared to bank financing. But a number of the start-up businesses seeking to increase their capital will be able to acquire some asset base to back up their commercial loan application. Thus, more banks are going to need a guarantee from a borrower that if ever there is a default the bank can go after the personal assets of said borrower. To get more tips on how to choose the best loans, visit http://www.huffingtonpost.com/jared-hecht/learn-how-commercial-real_b_13310450.html.


With banks tightening down their lending criteria, businessmen need to have available working capital in order to grow the business. This is where revenue based lending, as an option, will prove handy.