REVENUE-BASED FINANCING (RBF) (Syllabus: GS Paper 3 – Economy)

News-CRUX-10     19th March 2024        

Context: Revenue-based financing (RBF) is gaining traction amongst statups and digital SMEs, as venture capital flow continues to be dry and traditional credit remains out of reach for many.

Revenue-based financing (RBF)

  • About: It is a non-collateralized debt against a percentage of gross revenue.
  • Alternative: This financing model allows digitally-enabled businesses to raise capital by offering a portion of their gross revenue as monthly repayments.
  • Preferential Choice for Companies: Businesses with consistent revenue streams, such as cloud kitchens, e-commerce merchants, and software-as-a-service firms, often opt for this financing solution.
  • Regular Share of Business Income: Investors in this type of investment receive a regular share of the business's income until a predetermined amount is reached.
  • Predetermined Payback Multiple: The repayment typically consists of a multiple of the principal investment, often ranging between three to five times the original amount invested.