Providing Small Businesses with Access to Capital
The Revenue Based Finance Coalition (RBFC) is a growing group of responsible finance companies who provide needed capital to small and medium-sized businesses through innovative, non-traditional Methods. Our members also include brokers and select vendors that provide technology and Operations services to the industry.
What is Revenue Based Financing?
RBFC members help meet the needs of American small business entrepreneurs by providing financing to qualified small businesses. Revenue based financing (“RBF”) is a factoring transaction that allows businesses to access funds for, as an example, a seasonal inventory surge or to replace an unexpected major equipment failure. In an RBF transaction, a business sells a fixed sum of its future receipts in exchange for an agreed-upon purchase price.
In an RBF agreement:
- As opposed to traditional lending products, the business instead remits a contractually specified percentage of its revenue. If revenue decreases, then the business has the right to correspondingly decrease its remittances.
- The RBF company takes the risk that the business’s revenue will be generated slower than expected and the risk that the business will fail or go bankrupt.
Example. If an RBF company purchases 10% of a business’s future revenue up to a purchased amount of $10,000, the transaction would be completed whenever the business succeeded in generating $100,000 in revenue, and remitted 10% of that revenue to the RBF company. This milestone could be achieved in a month, a year, or never.
Advantages of Revenue Based Financing
RBF has many advantages for small businesses:
- Unlike traditional consumer loans, or other loan products, there is no personal guaranty of repayment. If, in the ordinary course of doing business, the business fails, then there is no obligation of repayment by the business. Business owners may guaranty that the business will use best efforts to perform its obligations. Personal liabilities could attach if the business acts in bad faith.
- Funds can be provided to the business in as little as 24 hours.
- The incentives of the RBF company and the business are aligned because the RBF company’s compensation is contingent on the business’s continued success.
- Unlike most Small Business Association loans, the business owner does not need to use his or her house as collateral.
- The business owner does not enter into a partnership, nor does it give up control of the business.