How does revenue based financing compare with equity and debt?

#3 in our 5 blog series explaining what Revenue Based Financing is, how does it compare with other forms of funding available to companies, and more…

Check out Part 1 and Part 2, if you haven’t already.

Most business owners are assessing different financing options to meet their capital needs. We’ve tried to make this a little easier. Here’s a ready reckoner on different financing options for businesses (with a focus on early stage needs) and how they compare with each other.

Klub RBF is an emerging financing model versus more conventional options — equity investments such as venture capital and angel investing, as well as traditional debt financing — and has quite a few advantages over the more conventional financing.

Here’s a snapshot of the financing landscape for early stage businesses:

As you can see, RBF has certain distinct advantages:

1. Accessible to a wider variety of businesses — Typically, less than 1% of all companies fit the criteria to get venture capital or private equity funding. They need to have innovative products with strong intellectual property or an exponential growth trajectory. A lot of great businesses might not rate strongly on both; yet, have a strong product portfolio, and a steady or growing revenue profile. On the other hand, traditional debt is more suited for companies with large assets or demonstrated profitability and is not easily accessible for early stage companies usually.
2. More flexible terms of repayment — Unlike a fixed regularly scheduled repayment that accompanies a conventional loan, Klub’s RBF allows brands to pay as a % of revenues versus fixed EMIs, or prepay and close the financing before the maturity date, if agreed upon return commitments are met.
3. No security required — While most conventional businesses when taking a loan, do require some type of security or collateral, Klub RBF doesn’t. New age digital businesses often do not have traditional forms of collateral like property or factories to put up, which excludes them from gaining traditional forms of financing in any significant quantum.
4. No dilution — With Klub, there is no equity dilution, and you retain complete control on how your business is run.
5. Shorter time frames for financing — Unlike traditional financing, Klub gets businesses their financing in a much shorter time frame, empowering a business to be able to work faster. We currently offer a 10–15 working day funding cycle (assuming the support of entrepreneurs to close diligence quickly) and would like to target shorter timeframes.
6. Friendly application process — Unlike the lengthy application process of a bank; Klub’s process is a seamless, and friendly one. Our experts work with the founders/finance team to get the necessary information and handhold them through the process.

Klub RBF offers a great alternative funding solution for businesses at any level of growth, providing an opportunity to preserve equity and control of the company. We fund new-age businesses leveraging tech-led innovation to reduce costs of bringing their offerings to market, and innovating constantly for superior returns on capital invested.

Thanks for reading. Next in this series, we’ll share more on what kind of companies are best suited to avail RBF, so stay tuned!

As a company seeking financing, if you’d like to explore more, reach out to us at brands@klubworks.com. For more information, visit https://klubworks.com.