Accounting For Revenue Based Financing

Investors began applying it to early stage companies in the 1980s.

Accounting for revenue based financing. Revenue based financing is the process of funding a business with an obligatory payback liability. A blend of bank debt and venture capital revenue based financing rbf is a funding model whereby investors inject capital into a business in return for a percentage of its revenue. This type of alternative financing allows companies to receive capital from investors up front. Revenue based financing is the best of both worlds where founders get large funding amounts while retaining ownership.

A lender will look at a company s total revenue picture and lend against both the total revenue that s brought into the company but will also use cash flow analysis when determining funding. What is revenue based financing. In short revenue based loans are financing facilities based not only on the company s past revenue performance but also projecting forward revenue. In exchange companies promise a certain percentage of future revenue.

To qualify for our financing you must be doing at least 15k in revenue in net cash receipts not accrual accounting basis per month for 3 months be growing not burning a ton of cash with a clear path to profitability and a good plan for use of funds. What is a high growth startup. At flow capital we can fund up to 5 million through revenue based financing if the company qualifies based on its annual revenue or annual recurring revenue level. Revenue based financing sometimes known as royalty based financing was used by oil investors in the early 20th century to finance oil and natural gas exploration and later by the pharmaceutical industry hollywood and energy companies.

The investment does not convert to equity but instead the invested company will after a grace period repay the investor over time up to a pre agreed return multiple.