Revenue-Based Financing or Recurring Revenue-Based Financing?
When entrepreneurs are ready to scale their company, a lack of cash can become a major obstacle. Traditional methods of accessing capital, such as equity financing, loans, or venture debt, may not provide the flexibility and freedom that entrepreneurs need. That's where alternative financing solutions come in, such as revenue-based financing and trading recurring revenues on platforms like Levenue.
So, what's the difference between Revenue-Based Financing and Recurring Revenue-Based Financing?
Revenue-based financing (RBF) provides capital in exchange for a fixed percentage of a company's revenue over time. One advantage of RBF is that it's a non-dilutive way for companies with predictable revenue to access capital quickly, even if they don't have the assets for traditional loans. Eligibility is based on performance and revenue criteria. The future revenue serves as collateral for the loan, and repayment is based on a percentage of revenue each month until a predetermined multiple is repaid. Repayments are sometimes flexible and based on monthly generated revenues. However, some RBF providers only offer funding for specific types of investments, such as marketing or inventory. The scope and industries that RBF providers can serve may be limited because they rely on an "on-balance" model, meaning they underwrite all financing with their own balance sheet, often related to underlying loans provided by banks.
RBF providers can be limited in their scope and the industries they can serve, as they rely on their “on balance” model (ie. they underwrite all financing with their own balance sheet) often related to an underlying loans (often provided by banks). In many cases, RBF lenders are capped at a few million dollars in funding and may only serve high-growth tech companies, or eCommerce businesses.
In contrast, Levenue's Recurring-Revenue Based financing model is a trading platform that allows businesses with recurring revenue streams to connect with investors looking for diversification. Levenue only connects investors with companies that have a recurring revenue business model, such as SaaS businesses, as investors purchase the companies' subscriptions at a discount through the platform.
Recurring Revenue-Based Financing is a form of RBF that focuses only on businesses that generate recurring revenue. A recurring revenue is a type of income a company receives from repeat purchases or payments for its products or services, such as a software subscription. Levenue treats revenue streams as a tradable asset, rather than collateral for a loan, and charges a small flat fee on trades on both sides. Levenue is a great fit for many businesses with recurring revenues, regardless of industry, and keeps the cost of capital down.
Recurring Revenue-based financing (RRBF) gives companies capital in exchange for a percentage of their future subscription revenue. Capital is advanced on the basis that companies will cede a certain percentage of their subscription revenue every month. For example, if a company takes out €500,000 in funding, they might agree to cede 30% of their subscription revenue each month. This idea, which enables subscription-based businesses to raise funds by selling their recurring revenues at a discount, is currently spreading rapidly around the globe. In Europe, Levenue, founded in 2021, is the largest European revenue-based financing marketplace.