Revenue-Based Financing: A Guide for SMEs in India

What is Revenue-Based Financing (RBF)?

Revenue-Based Financing (RBF) is a type of funding where businesses receive capital in exchange for a percentage of their future monthly revenue until a predetermined repayment cap is reached. Unlike traditional loans, RBF does not involve fixed EMIs or interest rates, nor does it require SMEs to give up equity.

Example: If an SME receives ₹50 lakhs through RBF, the repayment might involve paying 5%–10% of monthly revenue until ₹60 lakhs is repaid (repayment cap).

Key Terms in RBF:

• Revenue Share Percentage: The portion of monthly revenue paid to the lender.
• Repayment Cap: The total repayment amount, usually a multiple of the funding provided.
• Eligibility: Based on the SME’s revenue consistency, rather than credit score or collateral.

How Does Revenue-Based Financing Work in India?

Eligibility Requirements:

• Consistent monthly revenue streams.
• Minimum revenue threshold (varies by provider).

Application Process:

• Submit revenue reports, bank statements, and GST filings.
• Providers assess the revenue flow to determine eligibility and repayment terms.

Repayment:

• A fixed percentage of revenue is deducted monthly until the repayment cap is reached.
• No repayment during months of zero or minimal revenue.

Role of Fintech Platforms:

Indian fintech platforms like Klub and GetVantage have streamlined the RBF process, offering quick approvals and disbursals tailored for SMEs.

Benefits of Revenue-Based Financing for SMEs in India

• Flexibility in Repayment: Repayments fluctuate with revenue, reducing financial strain during low-revenue months.
• No Equity Dilution: Unlike venture capital, RBF allows SMEs to retain full ownership of their business.
• Fast Approvals: RBF applications are processed faster than traditional bank loans, often disbursing funds within days.
• Scalability: Ideal for businesses experiencing seasonal fluctuations or aiming to scale operations quickly.
• No Collateral Required: RBF providers assess revenue potential rather than requiring physical assets as security.
• Support for Diverse Industries: Sectors like e-commerce, SaaS, and retail can benefit immensely from this funding model.

Challenges of Revenue-Based Financing for Indian SMEs

• Higher Costs: RBF typically involves higher repayment caps compared to bank loans, making it costlier.
• Unsuitability for New Businesses: Startups without steady revenue streams may not qualify for RBF.
• Limited Awareness: Many Indian SMEs remain unaware of RBF and its advantages over traditional funding.
• Complex Revenue Calculations: Determining the right revenue share percentage requires careful planning.

Revenue-Based Financing vs. Traditional Business Loans