Revenue-based financing is a funding model where businesses receive capital based on a percentage of their future revenue. Here's an example:
Let's take Company XYZ, an e-commerce business. They approach Velocity for funding and receive INR 50 lakhs at a revenue share of 10%. They repay Velocity by sharing 10% of their monthly revenue.
If Company XYZ generates an average monthly revenue of INR 10 lakhs, they would repay Velocity INR 1 lakh per month. Repayment continues until they reach the total repayment amount, such as INR 55 lakhs.
The key advantage of revenue-based financing is that repayment is directly tied to the business's revenue performance. If their revenue increases, the repayment amount increases, enabling faster repayment. If revenue decreases temporarily, the repayment amount adjusts accordingly.
This flexible and performance-based approach makes revenue-based financing appealing for businesses, especially those with revenue fluctuations or seeking to avoid rigid loan repayment structures.