Revenue Share Loans are an old concept that this being popularized by Crowdfunding.
Its a simple promise to pay a fixed amount back to the lenders within a fixed time period. The fixed payback amount is usually expressed as a multiple of the amount borrowed (1.5x to 1.75 x).
Instead of fixed installment payments, the borrower makes monthy or quarterly installment repayments equal to an agreed upon percentage of the borrower’s revenue. This makes the loans attractive to businesses that have large revenue fluctuations.
There is a balloon payment due if at the end of the loan term installment repayments have not fully repaid the agreed upon payback amount.
The loan agreement usually does not state an interest rate. The actual interest rate the lender earns depends on how quickly the loan is repaid. That in turn depends on the borrower’s revenue. High revenue growth can result in lenders earning annual interest rates that match or exceed equity returns, but the total amount e borrower repays always remains the same.
Generally, Revenue Share Loans are unsecured, the borrower’s owners are not required to sign personal guarantees ad financial covenants are either light or non-existent.
Any business that does not qualify for bank loans, but is or soon will be generating revenue, has high margins and a high growth rate should consider Revenue Share Loans.
We have financial modeling tools that use the clients’ own data about current revenue and profits and projected growth rates to help clients quickly analyze multiple offering terms and repayment scenarios.
Our tools calculate projected interest rates, projected repayment installments and Debt Service Coverage Ratios based on the amounts they want to borrow, proposed maturity dates and the payback multiples they are considering offering investors.
We collect relevant information from businesses using short questionnaires. A business can usually provide the information we need in less than ten minutes, if it already has historical financial information and projections.
Revenue Share Loans are a great way to reduce ownership dilution. We can also help businesses determine the amount of dilution that will save by using Revenue Share Loans instead of selling equity.
Any business that does not qualify for bank loans, but that ss or soon will be generating revenue, has high margins and a high growth rate should consider Revenue Share Loans. Software businesses and restaurants and craft breweries are among he industries where Revenue Share Loans are changing the capital raising landscape.
We describe revenue Share Loans in detail in a series of three blog posts:
Loving Revenue Share Loans: https://gatewaycapitalx.com/2017/10/09/iloverevshare-and-you-shohld-too/
Why Investors and Businesses May Not Love Revenue Share Loans: https://gatewaycapitalx.com/2017/10/10/197/
Crunching Revenue Share Loan Numbers: https://gatewaycapitalx.com/2017/10/10/crunching-revenue-share-loan-numbers/