What is the income-based funding?
on the basis of financial revenue (RBF), also known as based financing of the Kings, it is a unique funding form by investors RBF for small medium-sized companies in exchange for an agreed business ratio "total revenue.
provider capital receives monthly payments until the repayment of the capital invested to him, along with the complications of the invested capital.
investment funds that offer this unique financing model is known as the boxes RBF.
terms
- referred to as the monthly payments to pay the fees.
- referred to income ratio of the business paid provider of capital for, as the price of the kings.
- referred to as complications invested capital be paid by businessmen to provide capital to serve as a cover.
case study
most of the capital RBF providers 20% seeks to 25% return on their investment.
Let's use a very simple example: If the business has received $ 1M from the capital RBF provider, is expected to pay $ 0,000 to $ 250,000 annually to provide the head of the business money. That up to about $ 17,000 to $ 21,000 a month paid by the business to the investor.
and as such, a provider of the capital is expected to receive the invested capital back within 4 to 5 years.
ROYALTY What is the rate?
all capital provider determines it expected its royalty rate. In our example above, the simple, we can work backwards to determine the interest rate.
Let's assume that the business produces $ 5M in gross revenues annually. As indicated above, they received $ 1M from the provider of capital. They pay $ 0,000 to the investor each year.
royalty rate in this example is 0,000 $ / $ 5M = 4%
VARIABLE ROYALTY rate
and the payment of fees commensurate with the upper line of the company. All things being equal, the higher the revenue that the business generates, the higher paying monthly fees business makes for a provider of capital.
consisttraditional debt from fixed payments. Therefore, the scenario RBF seems unfair. In this way, not to punish business owners for their hard work and success in business development.
In order to address this problem, most of the financing for the Kings agreements include a variable royalty rate schedule. In this way, the higher the income, the lower the rate of application of the Kings.
negotiatedschedule on the scope of exactly sliding between the parties concerned and contained in a paper-term contracts and clearly.
how the EXIT-based business finance income ARRANGEMENT?
every business, especially technology companies, which grow very quickly will outgrow eventually need for this type of funding.
balance sheet and income statement of the business to become stronger, and the business will move up in the hierarchy of financing and attracting the attention of more traditional financing solution providers. You may become a candidate to be the business of the traditional religion of the cheapest in interest rates.
and as such, it determines all based financing agreement on revenue how business can buy down or buy from the capital provider.
buy down option:
and the employer always has the option to buy down part of the royalty agreement. Specific conditions for the option to buy down vary for each transaction.
Overall, the provider of the capital is expected to get a certain specified percentage (or multiple) of its capital investor before buying the bottom of the option can be exercised by the employer.
and the employer can exercise this option through once or several lump sum payments provider of capital. Down payment to buy a certain percentage of the royalty agreement. After which it is invested capital and reducing pay the monthly fee by proportionate.
buy-out option:
In some cases, the business may decide that it wants to buy out the entire finance and extinguish the Kings agreement.
This often happens when the sale of a business and chooses not to continue in the acquiree financing arrangement. Or when it became a commercial strong enough to gain access to cheaper sources of funding, and wants to rebuild itself financially.
In this scenario, the business has the option to buy the full agreement of Kings predetermined multiples of the total capital invested. This multiple is usually referred as the hat. Specific conditions for the full purchase option differ for each transaction.
use of funds
There are generally no restrictions on how the capital RBF can be used by business people. Unlike conventional debt arrangements, there is little to no debt covenants restrictive on how business can use these funds.
capital provider allows business managers to use the funds as they see fit for business growth.
finance the purchase of:
Many technology companies are using the money RBF to get other companies to intensify their growth. Capital providers RBF encourage this kind of growth because they increase the rate of their royalty revenues can be applied to.
also grow the business through the acquisition, RBF Fund receives pay higher fees, and thus benefit from the growth. As such, it can be a great source of funding RBF to finance the acquisition of a technology company.
benefits based financing income for technology companies
no assets, no personal guarantees, not traditional religion:
unique technology companies of its kind in that it is rarely a traditional fixed assets such as real estate, machinery and equipment or. It is driven by technology companies by the intellectual capital and intellectual property.
This IP intangible assets are difficult to value. As such, the traditional lenders to give them a little without value. This makes it very difficult for the small and medium-sized technology companies to gain access to traditional financing.
on the basis of revenue funding it does not require work to ensure the financing of the contract with no assets. There's no need for personal guarantees from business owners. In traditional bank loans, bank and often require personal guarantees from the owners, and follows the personal assets of the owners in the event of a default.
There are conflicting interestsRBF capital provider with the employer: Can
technology companies scaled faster than traditional companies. As such, it can ramp revenues quickly, which enables the business to pay off the Kings quickly. On the other hand, poor product brought to market can destroy the business revenues at the same speed.
traditional plastics such as Bank receives a fixed debt payments from the debtor's business, regardless of whether the business grows or shrinks. During lean times, and businessmen make debt payments exactly the same to the bank.
There are conflicting interests RBF capital provider with the employer. If lower business revenue, and provider of capital RBF receives less money. If the increase business revenue, and provider of capital, receives more money.
and as such, the provider wants RBF business revenues to grow so quickly able to participate in the upside. All parties benefit from the revenue growth in the business.
Higher gross margins:
Most companies generate higher gross margins than traditional technology companies. This makes higher margins RBF affordable technology companies in many different sectors.
RBF funds seeking companies with high margins that can easily afford to pay the monthly fee.
do not stock, not the board seats, not a loss of control:
equity capital provider in business success but do not receive any equality at work. As such, the cost of capital in the order of RBF cheaper than the financial and operational terms of investment in comparable stocks.
RBF capital providers have no interest in getting involved in business administration. Over the active participation reviewing the monthly income received from the business management team reports in order to apply the appropriate royalty rate RBF.
expect conventional stock investor to have a strong voice in how business administration. He said he expected a seat on the board of directors and a certain level of control.
expect investor traditional stock to get much higher multiples of the invested capital when he sold his business. This is because it takes a greater risk because it rarely receives any financial compensation until the sale of the business.
cost of capital:
capital provider receives RBF payments each month. It does not need to work to be sold in order to get a return. This means that the provider of the capital RBF able to accept lower returns. This is why it is cheaper than traditional stock.
On the other hand, RBF is more dangerous than traditional debt. Bank receives fixed monthly payments, regardless of the financial statements of the company. RBF capital provider could lose their entire investment if the company failed.
in the balance sheet, RBF sits between a bank loan and equity. As such, RBF is generally more expensive than conventional debt financing, but cheaper than the traditional stock.
Funds can be received in 30 to 60 days:
In contrast to traditional investment debt or equity, RBF does not require months of due diligence or complex assessments.
and as such, the period of time between the submission of a paper-term funding for the employer and the funds disbursed for business can be less than 30 to 60 days.
companies that need money immediately can benefit from this quick turnaround time.
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