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Top 6 Questions Asked about Revenue-Based Financing

Last month, we held a popular webinar, featuring Lighter Capital CEO BJ Lackland, on why growing technology companies should consider revenue-based financing, a type of funding structured with payments that are based on a percentage of monthly revenues. If you missed it, we’ll recap the discussion below.

Here are the answers for the top six questions asked about revenue-based financing during the webinar.

Q1: Does a RevenueLoan show up as debt on the balance sheet?

A: Yes. Your debt on the books is the principal. Every month, you will get a statement from us indicating the principal and interest, and how much of the principal is left outstanding, just like with a normal loan.

Q2: Is the minimum of $15,000 in revenues per month a hard minimum?

A: Yes, that’s a relatively hard minimum. Before we invest, we need to see that the company has revenue and has an expectation for continued revenues, as it’s the way we get paid.

That said, we love to talk to entrepreneurs who are earlier stage—with monthly revenues of 10K or even earlier—to educate them on what we do and when they would qualify. We can also refer entrepreneurs to other financing sources that might be more applicable for them at their early stage. We can provide roughly four months worth of your monthly revenues in funding—or a third of your annualized run rate.

Q3: Are there any penalties for paying out the loan early?

A: No, there are no penalties. There is not much incentive to paying the loan out early, as there’s a total amount due that is pre-determined, but you can pay out any time you want. If you are in negotiations to sell the business when you take out the loan, we also try to structure a reduced payment if a sale happens at an earlier date than the five-year maturity, so that the payment you need to make is reasonable.

Q4: Do you help companies find a strategic partner?

A: Yes. Right now, we are working with one client to help them think through what type of company to target. We are not an investment bank, but we are there to help and we will make any introductions we can make. We can also introduce you to investment banks.

Q5: What makes the funding process go smoothly?

A: We want to see some of the same things that any investor or lender will want to see—for instance, information on your customers, your products and services, your billing process, how you retain customers, what you plan to use the money for, and what existing debt you have.

What slows down our process the most is not having relatively clean and up-to-date financial information. If you only do your accounting once a year and you can’t tell us how your business performed in the first half of this year, it will be difficult for us to fund you. But if you have regularly updated your cash and accrual accounting, we’re good. We understand you are a small business.

Q6: How long does it take to get follow-on financing?

A: The first round of financing takes about a month. When we do a follow on, it’s dramatically shorter and truncated. Let’s say, five months after the first round, the entrepreneur wants another chunk of funding. We can go from the first phone call to financing in about a week. Once we meet terms, we draw up an amendment—it’s legally very cheap. If your business has grown since the initial round, we can also adjust the structure, and, for instance, take a smaller percentage of your revenues, so the loan becomes cheaper.

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