Business in Revenue Mode? You May Not Need Bank Loan
SEATTLE (MainStreet) -- What do bouncy castles, online yoga classes, online medical-solution software, a chocolatier and social media tools have in common? They're all businesses that have been funded through revenue-based financing.
Lighter Capital specializes in revenue-based financing. In just over a year since it launched, the company has done 20 transactions in 14 companies totaling roughly $2 million through its RevenueLoan product. The company mainly invests in software and high-margin, high-growth companies like software firms, but also seasonal businesses.
|A lighter side of capital: revenue-based loans offer an alternative to bank lending.|
Rob Belcher, Lighter Capital's vice president, explains what revenue-based financing is and how to make it work for your company.
How does revenue-based financing work?
Belcher: Revenue-based financing is a loan
We invest $50,000-$500,000 and that generally is into companies that are doing at least $300,000 in trailing 12-month revenue up to $5 million in revenue. Obviously that means that they've got to have revenue,
What do these companies generally use the funds for?
We tend to lend 10%-30% of a company's annual revenue.
The model works very well with companies that are high growth -- 50% growth margins or better -- and able to scale their sales.
It's not a good use for working capital because working capital doesn't grow sales. The core use of our