Small businesses have massive potential for growth and the only hurdle in realising this is lack of capital. The dependency on banks for loans and venture capitalists for equity linked capital has been saturated for founders since a long time now. From angel investments to non-bank sources, 50% - 70% of these companies look for funding. It's critical for small businesses to have continuous access to funds for growth. Small enterprises frequently lack the working capital or established credit lines that would allow them to execute their growth roadmaps. Alternative finance sources address that gap by providing access, availability, and timeliness to company owners. The truth is that banks lack the necessary tools to accomplish flexible capital and solutions best suited for growing startups.
Revenue based financing has disrupted the Indian money market since 2019 showing substantial growth YoY. In a market where venture capital is at top of the pyramid and startups rely on the networking for investors introductions, ultimately non equity dilution, revenue based financing is gathering momentum. Revenue based financing allows startups to raise funds by pledging a certain percentage of their future revenue as a payment until all paid. Revenue based financing can be accessed by all the businesses having high growth trajectory, predictable margins but need funds to achieve growth.
Revenue financing helps businesses procure equity free capital, henceforth keeping full control of the business without diluting equity. Also RBF investors take no role on board, allowing founders to have complete authority over decision making. Many startups raise RBF rounds in between equity rounds to maintain their liquidity that helps them invest in high-ROI processes like inventory management, supplier payments, marketing spends and digital advertising. During high business volume periods like sale sprees, festive season, etc., growing startups can use this capital to grow faster and build leverage for upcoming equity fundraise rounds.
RBF allows startups to pay dynamically with no fixed repayment instalment. Payments are done on the basis of the monthly revenue which means if you are having a bad month you are not obliged to pay large payments you can’t afford. Many low margin business models have an element of seasonality in their cash inflows which makes it harder for founders to invest in growth plans. In such a revenue model, flexibility plays a huge role. Fixed EMIs from institutional loans add a lot of strain on your monthly inflows so a customisable debt structure can come in handy to grow sustainably during high-business volume periods. Through Revenue Based Financing, brands get access to capital with flexibility in tenor and monthly revenue share.
Revenue financing is basically focused on businesses short term capital requirements such as working capital, inventory fulfilment, etc. Startups can go for multiple rounds of fundings if they are showing promising growth over the time. Ideal revenue funds duration looks in between 4 to 18 months. By repaying faster, brands can unlock similar or larger capital sizes for what comes next on their growth plan. Through repeated rounds, brands can maximise their cash inflows by deploying economies of scale.
Revenue financing is done on the basis of businesses previous months performances, collectibles, growth etc. High data driven risk assessment is done on the financial performances to see if it matches investors gating requirements. Unlike NBFCs and banks, RBF requires no mortgage as a guarantee. Credentials of the founder(s) and the team have played an instrumental role in securing equity funding from angel investors and venture capitalists. This is a practice that needs to change as more and more entrepreneurs are building innovative products and background should not hamper their success probability.
Klub, India's leading Revenue Based Financing platform, provides fast, founder-friendly, and flexible funding up to Rs. 30 crores to digital businesses with recurring revenues. The company partners with leading NBFCs, HNIs, Financial Institutions, and has its own SEBI registered fund to provide working capital to digital businesses. Klub also partners with leading marketplaces to provide embedded financing solutions for their merchants. The company has deployed more than 600 investment rounds enabling growth for 250+ brands across India.