What is Revenue-Based Financing? Here’s Everything an Entrepreneur Must Know

What if you could raise funds without parting with equity or pledging assets? This funding model exists and is called revenue-based financing (RBF). It is a unique way for entrepreneurs to raise capital without diluting their stake or providing collateral. Also, there’s no baggage of fixed monthly instalments. Repayment is flexible and happens as a percentage share of future revenues.

The History of RBF

Before we delve into the working of RBF, let’s take a look at its history. Arthur Fox, an England-based entrepreneur-investor, proposed this revolutionary model to fund young businesses in the 1980s. Following its tremendous success, Fox formed an RBF fund in 1992 before eventually licensing the model in 2011. It is now being leveraged to fund growing businesses around the world. 

How Does the RBF Model Work?

Let’s say you own a business and want to inject additional capital to fuel growth. You consider the traditional options of debt and equity financing. However, no bank is ready to sanction a loan without collateral or personal guarantees and you do not wish to sacrifice equity. So, you turn to a revenue-based financing firm for help.

Based on your revenue history and gross profit margin, they offer you growth capital up-front for a small fee. You pay them a percentage of your future monthly revenues. This cycle continues till you repay the entire capital along with the fee.

About Us

Velocity is proud to pioneer revenue-based financing for businesses in India. We currently cater to online direct-to-consumer (D2C) and e-commerce businesses. Based on their online sales and revenue data, we offer them non-dilutive, collateral-free growth capital of up to Rs. 2 crore. They can deploy this capital to fund repeatable revenue-linked expenses such as marketing spends, inventory costs, etc.

How Are We Different?

Unlike traditional RBF firms, our entire process is digital. All you have to do is fill an online form. Based on your data, we get back to you with an indicative offer within 24 hours. Once you share your online sales and revenue data, we generate the final offer and disburse funds within 72 hours.

What makes our RBF model a win-win for you? Suppose you get Rs. 30 lakh at a revenue share of 10% and a flat fee of 5%. Let’s say you have a gross margin of 50% and a return on ad spends (RoAS) of 3x. By deploying this capital towards digital marketing spends, you will rake in revenues of Rs. 90 lakh and a gross profit of Rs. 45 lakh. Even after repaying us, you will end up with Rs. 13,50,000 more in your bank account.

Advantages of Velocity’s RBF Over Traditional Financing Models

1. Founder-friendly

You raise capital without diluting your stake in the business. Your business is your business, none of our business.

2. Collateral-free funds

We use a data-backed approach and offer capital based on growth potential. You don’t have to pledge your personal or business assets.

3. Flexibility

There is no fixed tenure or EMI commitment. Repayments are linked to your revenues. This means you pay less on a rainy day. 

4. Speed

The entire process is digital. You can apply online within minutes and get funded within a week. Trust us, we do full justice to our name.

These significant advantages make RBF a lucrative alternative to venture capital (VC) funding and bank loans. You can read more about it on our website.

Watch this space for more informative articles on all things finance. If there’s a topic that you would like us to cover, let us know in the comments.

Velocity provides revenue-based financing of up to Rs. 2 crore to online Indian businesses. We currently cater to direct-to-consumer (D2C) and e-commerce brands. To grow your business with us, apply now and get funded within 7 days.

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