Revenue based financing is a type of financing where a company receives an infusion of capital in exchange for a percentage of its future revenue. This is different from traditional forms of financing, such as debt financing or equity financing.
With revenue based financing, the amount of money a company must pay back is based on its revenue, so if the company's revenue decreases, its payments will also decrease.
This can be a useful option for companies that may not have access to traditional forms of financing or those that want to avoid taking significant amounts of debt.
Recurring revenue based financing is a type of financing that is based on a company's predictable, recurring revenue streams. In recurring revenue financing, the lender provides capital to the company in exchange for a percentage of the company's recurring revenue.
In recurring revenue based financing, the amount of money the company must pay back is based on its recurring revenue.
If a business has a reliable stream of recurring revenue, mostly subscription-based businesses then Recurring revenue based financing can provide an advantage over classic revenue based financing.
Revenue based financing penalizes growth by increasing the amount of repayment based on the revenue of the company. ie, when your revenue increases your repayments increases too.
Meanwhile, RRF let’s you focus on growth by offering predictable and stable cash flow with lower interest rates.
Revenue based financing usually takes around 25% - 30% in interest by increasing the amount of repayment when your revenue grows and eats up a large portion of your revenue.
While, Recurring revenue based financing offers 8% - 12% upfront discount.
With Revenue based financing you get around 15% of your ARR and the process is time consuming which usually takes at least a week or even more than that in some cases.
While Recurring Revenue based financing provides you upto 50% of your ARR in just 48 hrs without covenants.