Revenue-based financing

Revenue based financing or royalty based financing (RBF) is a type of financial capital provided to small or growing businesses in which investors inject capital into a business in return for a percentage of ongoing gross revenues. Usually the returns to the investor continue until the initial capital amount, plus a multiple (also known as a cap) is repaid. Most RBF investors expect the loan to be repaid within 4 to 5 years of the initial investment. RBF is often described as sitting between a bank loan, typically requiring collateral or significant assets, and angel investment or venture capital, which involve selling an equity portion of the business in exchange for the investment. In an RBF investment, investors do not take an upfront ownership stake (equity) in the business, usually taking a small equity warrant instead. RBF investments usually do not require a seat on the company’s board of directors, and no valuation exercise is necessary to make the investment. Nor does RBF require the backing of the loan by founder’s personal assets.