- PREMIUM CONTENT https://www.techinasia.com/rbf-alternative-traditional-loans-venture-capital Tech In Asia
Katrina Balmaceda · 27 May 2020 · 8 min read
The era of “move fast and break things” looks to be over. Once conducive to unicorns and venture capitalists with a kingmaker bent, this high-growth and high-risk mentality is losing appeal among business owners amid decreasing stock prices and the economic fallout from the Covid-19 pandemic.
Some entrepreneurs like Treman Singh Ahluwalia prefer to take a slower but steadier path to growth. He owns Sugar Watchers, an Indian company that produces low-GI (glycemic index) variations of food staples such as rice and sells them online.
Ahluwalia is aiming to raise money from investors once his company reaches the right valuation. Until then, he’s relying on revenue-based financing (RBF), with GetVantage an alternative type of loan that’s paid back with a percentage of the borrower’s gross revenue, to help the business grow.
The RBF provider may require borrowers to pay a flat fee, which is equivalent to a percentage of the loan amount. For example, a business might take a US$10,000 advance that incurs a flat fee of 10%. It will have to pay back a total of US$11,000.
If the startup achieves a revenue of US$20,000 in the first month, it pays US$2,000, leaving a balance of US$9,000. The company will continue to pay out a percentage of its revenue until the loan is fully paid.