Introducing Revenue Based Financing
This is #1 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…
Klub is pioneering a new form of flexible financing for Indian brands!
If you run a consumer business and are exploring financing options, read more to know all about Revenue Based Financing (RBF) and how you can use it to scale your business faster.
What is Revenue Based Financing?
RBF is growth financing where repayments happen as a % of revenues.
Revenue-based financing enables a company to share a fixed percentage of future revenue with an investor or lender in exchange for capital.
How does RBF work?
Let’s say you run a business and are expecting Rs 20–22 lakhs in revenues over 6 months. You opt to raise Rs 2 lakhs as a part of our Klub Blaze product at a fixed yield of 10%. You repay Klub with a revenue share rate of 10% every month. This is what your payouts look like:
Actual revenues = Rs 2,200,000
Financing raised = Rs 200,000
Repayments = Rs 220,000
Cost of Capital = Rs 20,000 or 10%
As you can see, monthly repayments are directly linked to the revenue performance of the business. They increase and decrease according to the revenues, making financing a variable cash outflow rather than a fixed one to the company. Hence, RBF offers more flexibility than a traditional EMI based loan.
If business temporarily slows down, and revenues are lower than expected in a certain month, the repayments would proportionately reduce for that month. In this scenario, Klub’s realization of returns is slower. Additionally, brands have a grace period over and above the tenure to make up for lower revenues if the revenues remain slow for the entire duration of the repayment period.
If the business grows quicker than expected, the monthly payments would be proportionately higher and the company ends up repaying quicker. Given the total amount to be repaid is agreed in advance, if revenue exceeds all expectations, the company still has to pay only the pre-agreed amount and not more. Once the pre-agreed return on investment is returned, there are no further payment obligations and the owner has retained their equity ownership while growing.
So as you can see, RBF is truly skin-in-the-game financing offering more flexibility to brand owners.
Thanks for reading. Next in this series, we’ll highlight what are the USPs of Klub’s RBF offering, 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.
