Revenue Based Financing Tax Treatment
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Rbf deals can involve as many as three different buckets of funding.
Revenue based financing tax treatment. Revenue based financing rbf is non dilutive funding based on your business s recurring revenue. Debt an rbf debit deal is treated for tax purposes just like any other debt. What is revenue based financing. A portion of revenues will be paid to investors at.
This paper demonstrates the influence of the different methods of taxing revenue based payments and shows that the preferable method depends on the development of the profits. The tax implication of revenue based financing depend on the structure of the specific deal. A recent internal revenue service irs chief counsel advice cca memorandum cca 201537022 clarified the tax treatment of tax increment financing tif reimbursements received by a real estate developer in connection with the construction of infrastructure improvements. Revenue based financing is a way that firms can raise capital by pledging a percentage of future ongoing revenues in exchange for money invested.
Payments that depend on the profits of a corporation can obtain an interest treatment if an instrument is structured according to the qualification criteria of a specific tax law. The tax treatment of the distributions return of capital vs. The payments fluctuate with the borrower s financial performance going up when revenue is strong and down when it is lower. A revenue based finance rbf investment provides capital to a business by selling an ongoing percentage of a company s future revenues to the investor.
Once the payments have totaled the funding amount plus an agreed upon multiple cap the repayment obligation has. Revenue based financing also referred to as royalty based financing is different than a fixed loan. In exchange for funding as your business generates future revenue a percentage of cash receipts usually between 3 8 are remitted monthly. Instead of having fixed payments revenue based financing allows the business to make monthly payments in proportion to their revenue for that month.
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