RBF funding: how much does it really cost?

The bottom line

• Revenue-Based Financing (RBF ) is a complementary or alternative method of financing to traditional financing such as bank debt and capital increases.
• The advantages of RBF are its speed, non-dilution and transparency.
• The cost of the RBF is between 4 and 10% of the amount financed : it is a commission charged according to certain conditions of eligibility and financing defined upstream. 

What is RBF?

RBF is a financing method that appeared in the United States in the 1980s, under the initiative of the American MIT engineer Arthur Fox . It can be considered as an alternative or a complement to traditional financing methods.

The RBF allows to finance the growth of young companies , especially digital ones, by relying on their revenues.

The principle of RBF is quite simple. It is about turning future revenues into immediate cash without dilution. This means that there is no consideration for the acquisition of share capital. You remain in control of your company.

The advantages of RBF are its speed, its non-dilution and its transparency (with respect to the repayment schedule). The RBF offers three advantages for digital companies: 

1. Speed: with Karmen, you can receive financing in less than 48 hours after your eligibility has been assessed.  
2. Non-dilution: Unlike venture capital financing, RBF does not require any equity in return.
3. Transparency: following the acceptance of your financing request, you receive a repayment plan with fixed fees and a schedule established beforehand. There are no additional or hidden costs added to the cost of the loan. 

Who is RBF funding for?

RBF financing is particularly aimed at digital companies. It allows them to acquire financing for their growth, where traditional banks are more reluctant to lend to companies without assets.

More concretely, the RBF particularly supports software publishers or e-commerce, digital business models based on subscription, D2C brands, service companies, and more broadly for all companies with more or less recurring revenues. 

What all of these businesses have in common is the need to have a more or less long-term view of their cash flow. The RBF thus meets a need for shorter-term financing in order to fund growth, customer acquisition, marketing, recruitment or product development.

Contrary to popular belief, RBF is not just limited to businesses with high monthly recurring revenues. You can be one of those businesses whose revenues fluctuate seasonally and still benefit from Revenue Based Financing. 

How do I get RBF funding?

If FBR is so democratic, how do you know if your company is eligible? FBR does not rely on tangible assets, movable assets (such as plant or machinery) or profitability. Instead, RBF breaks away from these traditional lending requirements.

At Karmen, to be eligible for FBR you must:

• Operating under a French company;
• Be registered as a company for at least 12 months;
• Recurring annual sales of at least €300,000;
• Attest to positive equity.
• Being a French company

If you meet these criteria, it may be helpful to track certain metrics that will be requested when you apply. At Karmen, these include Lifetime Value (LTV), Customer Acquisition Cost (CAC) and Monthly Recurring Revenue (MRR).

Nothing could be easier. If you have any doubt about your eligibility, don't hesitate to ask to one of our consultants.

What are the costs associated with RBF?

You meet these criteria and would like to obtain RBF funding. How much will it really cost you? One of the benefits of FBR is its transparency. The FBR application is quickly made online. It's based on open banking, which allows Karmen to review your application and provide you with a financing and repayment plan .

Repayment: here we go. Depending on the FBR model, you can repay your loan in different ways.

In general, Karmen prepares a repayment plan with a fixed monthly payment and a predefined schedule . This allows you, the borrower, to increase your visibility and readability of your repayment schedule.

This type of monthly payment traditionally takes the form of a commission of between 4 and 10% of the loan provided, depending on the conditions established. 

With Merchant Cash Advance, commonly known as MCA (a form of RBF), repayment is made as a percentage of your generated sales. Depending on your income, you repay a portion of your loan. 

If your turnover decreases, your royalties also decrease, and vice versa. This type of reimbursement is particularly interesting for digital companies with high seasonality.

So you understand how the FBR is transparent. The financing line is calculated in advance and according to your future income. You repay according to a schedule agreed in advance and with pre-defined commissions. No bad surprises on the horizon. 

Thus, Revenue Based Financing is perfectly suited to the needs of small businesses. Banks, for example, do not always understand these business models and lack information.

At Karmen, we collect the information necessary to estimate the risk at the source, and offer financing at . 

Is RBF funding cost-effective?

To tell you otherwise would be surprising and misleading. The FBR concept does not involve any personal guarantee or capital dilution . These are two major criteria when choosing your financing.

What's more, the costs are defined in advance. So there are no hidden extra costs that could put your business in a difficult position. 

The RBF is particularly profitable in certain situations such as the preparation of a fund raising, the acceleration of your growth, the financing of working capital, the financing of stocks .

Preparing to raise funds

Complementary to fundraising, the RBF allows you to improve certain key indicators that are closely watched by investors. It also allows your company to have a better valuation. 

The RBF allows for short-term ROI operations to be financed and thus release funds over the long term.

Accelerating your growth

Undeniably, such a non-dilutive cash flow allows you to finance operations and activities such as customer acquisition, marketing or product development .

These types of transactions allow you to increase your number of clients and thus your monthly income . It is a quick cash advance that can be used immediately. 

Financing of working capital

The RBF allows you to finance your cash flow needs by covering your expenses. 

In fact, WCR represents your company's working capital requirement, i.e. the amount of money you need to get all your cash out. Thus, this cash advance based on your future revenues allows you to finance your WCR in the short term .

Inventory financing 

Inventory management is a crucial issue for some digital companies, especially in e-commerce. 

Indeed, having enough inventory to meet customers' needs, without making excess storage (very costly for young companies), can be a difficult trade-off.

The RBF allows digital start-ups to obtain cash quickly in order to finance inventory. This is especially advantageous for companies whose cash flow needs are greater than their accounts receivable. 

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On the other hand, RBF will be less appropriate for debt repayment, R&D financing or very long-term financing. 

Conclusion:

The RBF is a new mode of financing that has arrived straight from our transatlantic neighbors to finance the growth of young companies. It counteracts some of the shortcomings of more traditional financing methods by offering many advantages, such as speedthe non-dilution and transparency.

This financing has a cost adapted to young digital companies. Whether in the form of fixed commissions or proportional to monthly sales, the cost of revenue based financing remains advantageous for these companies. Don't wait any longer and come and test your eligibility with our consultants.