An Introduction to Revenue Based Financing in Singapore

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Aug 02, 2023

An Introduction to Revenue Based Financing in Singapore

General Overview

Revenue-Based Financing (RBF) is a lesser-known but extremely practical alternative to traditional company financing that is gaining popularity among entrepreneurs and small business owners.

Consider this: You have a wonderful business idea, a product in high demand, and a vision for expansion, but obtaining traditional loans or giving up sections of your firm through equity arrangements is overwhelming. This is where revenue-based financing comes in.

Consider finance that is tailored to your company's success, providing a lifeline of money without the inconveniences of high interest rates or share dilution.

In this article, we'll walk you through the ins and outs of revenue-based financing, breaking down sophisticated financial jargon into plain English and assisting you in understanding how this unique funding model works.

Revenue-based financing usually requires companies to be profitable and have enough cash on hand or contracts/tender proceeds yet to be realized.

How Revenue-Based Financing Offer A Unique Solution To Traditional Bank Loans?

When it comes to funding the development and expansion of your business, Revenue-Based funding (RBF) offers a distinct and innovative alternative to business loans and equity investments. Here's a deeper look at how RBF provides a totally unique funding approach:

Alignment with Revenue Performance: Unlike traditional loans that need set monthly payments or equity investments that erode ownership, RBF's distinguishing characteristic is its alignment with revenue performance of your organisation.

Instead of strict payment schedules, RBF allows you to repay a percentage of your earnings, establishing a symbiotic relationship between the funding provider and the success of your business. This implies that your payback load automatically lessens during slower periods, alleviating financial strain and offering breathing room that traditional loans frequently lack.

Repayment Flexibility: RBF's dynamic repayment plan offers unrivalled payback flexibility. Your repayments change in tandem with your business income. This not only keeps your payments affordable during difficult times, but it also allows you to capitalise on moments of strong development without paying larger fixed payments. The natural rhythm of business cycles is mimicked by the ebb and flow of repayments, allowing you to make prudent financial decisions that are in line with your present circumstances.

No Equity Dilution: Unlike equity financing, which requires you to give up ownership in return for funds, RBF allows you to acquire finance without giving up ownership holdings in your firm. This means that as your company grows and prospers, you retain complete control over its direction and decision-making procedures. RBF allows you to retain your vision and your company's future in your hands, which is especially tempting for entrepreneurs who are enthusiastic about their company's goal and success.

Access to Funding at Various phases: RBF provides a funding channel that is especially accessible to enterprises at various phases of growth. RBF can meet your financial needs whether you're an early-stage company wanting to support product development and initial growth or an established small business trying to scale operations. Traditional lenders may be unwilling to lend to companies that lack considerable collateral or a credit history, but equity investors frequently target enterprises at certain phases of growth. RBF, on the other hand, welcomes a broader range of enterprises, creating equality and opportunity.

Minimal Red Tape: RBF transactions frequently entail less bureaucracy and complexity than traditional finance solutions. The emphasis is mostly on your company's income potential and performance, which simplifies the application and approval procedure. This efficiency can translate into faster access to funds, allowing you to capitalise on opportunities or handle issues as they arise.

The problem with revenue-based financing is that it assumes the company will make a certain amount of income as future revenue. If the company does not make enough money, then they can either go out of business or give up equity to repay investors. This type of financing is often only offered to fast-growing startups that are on their way to becoming profitable entities.

Unlock Your Funding Potential Today! Apply Now and Let Us Secure Your RBF Success.

Should Your Business Choose Revenue-Based Financing, What Should Be Your Consideration?

When contemplating revenue-based financing, businesses must carefully analyse the impact on profit margins and cash flow. The percentage of revenue shared with RBF Lenders reduces net profit margins immediately.

RBF should be weighed against other funding sources such as Bank Business Loan and Venture debts. Each option's cost of capital and dilution should be considered. RBF prevents dilution, although cumulative revenue sharing payments may be more expensive than stock or debt in some cases. The flexibility of RBF over fixed monthly payments with debt is a significant advantage. Overall, RBF gives an alternate option, but it must be weighed against other sources of financing.

For enquiries on bank business loans, contact us here.

RBF contracts have several comprehensive terms and conditions that businesses must understand before signing. The definition of revenue, payment frequency, payment ceilings, recourse provisions, and other legal elements, for example, must be thoroughly analysed. It is strongly advised to look and vett through throughly on the terms and conditions.

It is also beneficial for new businesses that can demonstrate a strong track record of current and future revenue. Thus Revenue- Based Financiers favour e-commerce as their sales history can be easily tracked via their e-commerce platform like Shopify or payment gate-way like Stripe or Paypal, or even delivery platforms can provide this information.

Is Revenue-Based Financing Right for You?

Revenue-Based Financing (RBF) is a versatile finance strategy that may excel in a wide range of sectors and scenarios.

Here are some excellent examples of revenue-based finance in use:

Your business is a fast-growing company, necessitating more cash for monthly revenue-related expenses like advertising and inventory;

Your business generates enough cash flow to cover working capital requirements; and your business is intending to grow. However, the parameters to obtain capital from investors are not favorable, and you do not want to dilute your stock;

Your company receives a sizable order but lacks the funds to fulfill it;

You want to keep a large cash reserve for optimal liquidity; or

A seed round of funding has been received by your business. It is set aside as a runway to cover your business's cash flow requirements up until the next round. But for expansion, you need more money.

Unlock Your Funding Potential Today! Apply Now and Let Us Secure Your RBF Success.

Industries and Scenarios Favoured by Revenue-Based Financing Lenders in Singapore:

1. Technology Startups:

RBF can be particularly beneficial for technology startups that might face challenges in securing traditional loans due to limited collateral or credit history. With RBF, startups can access capital to fund product development, marketing, and initial growth stages.

2. E-Commerce Ventures:

Businesses in the e-commerce sector often experience fluctuations in revenue due to seasonal demands. RBF's flexible repayment structure can accommodate these revenue fluctuations, making it an attractive option for online retailers.

3. Service-Based Businesses:

Consulting firms, marketing agencies, and other service-based businesses often have reliable cash flows but might need funding for expansion or hiring. RBF allows these businesses to maintain steady operations while accessing growth capital.

4. Hospitality and Tourism:

Businesses in the hospitality and tourism sectors often experience cyclical revenue patterns. RBF's adaptable payments can provide breathing room during off-peak seasons while facilitating growth during peak times.

5. Healthcare and Wellness:

Startups or established businesses in the healthcare and wellness space can utilize RBF to fund research, expand facilities, or enhance service offerings without compromising ownership.

High Growth Potential Companies and Companies with an Online Digital Footprint are what RBF lenders are searching for.

Exclusion: Crypto Companies, Construction Companies, Traditional Manufacturing Companies or Companies that do not have any digital footprint such as website, social media, etc.

Who Are The Revenue-Based Financing Lenders In Singapore And What Are Their Qualifying Criteria?

Revenue-based finance (RBF) has emerged as a viable alternative funding option for Singapore startups and growth-stage businesses seeking to develop without diluting equity or in some instance does not qualify for bank business loan criteria. Currently there are only two prominent RBF lenders in Singapore, Choco-Up and Jenfi.

These financing companies offer non-dilutive capital in exchange for an agreed percentage of future revenue over a fixed term. The typical qualifying criteria include:

Key Features:

1. Company must be incorporated in singapore (Can be 100% foreign owned with parent companies overseas).

2. Usually do not required Personal Guarantee from the Keyman of the company.

3. Up to 12 months Repayment period. It is possible to pro-long the repayment period beyond 12 months if the entire loan amount is not paid off by the end of the tenor.

4. Loan amount up to 1-1.5x monthly business income.

5. No fixed monthly instalment (% of revenue pay-out range between 5-30%).

6. One time Fees of 12-28%.

7. No Credit Bureau and Directors' Personal NOA assessments.

8. Only Private Limited and Limited Liabilities Partnership Can Apply.

Here is an illustration chart for a RBF loan example:

For example, consider a software company in Singapore that secures an RBF loan of S$100,000 with a 12-month repayment term.

The RBF lender charges fees of 12% on the capital provided. This means on the S$100,000 loan amount, the fees equate to S$12,000 (12% of S$100,000).

Therefore, the total repayment amount due in 12 months = Original Loan + Fees = S$100,000 + S$12,000 = S$112,000.

Unlock Your Funding Potential Today! Apply Now and Let Us Secure Your RBF Success.

So for the S$100,000 borrowed, the company will now need to repay S$112,000 within one year, including the S$12,000 in financing fees. The effective annual cost of capital is 12% as per the fees charged.

This simple example illustrates how important it is for companies to factor RBF fees into their total cost of capital and cash flow projections when considering financing options. The fees can significantly increase repayment amounts.

Disclaimer: The repayment schedules provided above are for illustrative purposes only and are not intended to represent any specific or real-world financial scenario. These examples are meant to provide a simplified and educational understanding of how Revenue-Based Financing (RBF) repayment calculations might work based on hypothetical revenue and deduction percentages.

Required Documents:

1. Last 6 months Bank Statements

2. Latest Year Financial report and Management Draft report for the latest 6 months

3. Loan Declaration Form

List of Revenue-Based Financing Companies In Singapore

The revenue-based lending providers listed below could give your Singapore-based business a major boost.

Choco Up: Based in Singapore and Hong Kong

Eligible sector: SMEs, startups, and e-commerce

Amount of funding: $10k to $10M

A quick summary: Choco Up is Asia's top revenue-based finance platform, having supported companies in more than 10 markets and 10 industries as the funding procedure at Choco Up was "evident and hassle-free."

Who could submit a financing request at Choco Up? Singapore-based businesses running operations for at least six months with minimum monthly income of $10,000

Jenfi: Based in Singapore

Eligible sector: "digital-native" companies, including SaaS providers and e-commerce sellers

Amount of funding: $10k to $1,000,000

A quick summary: In certain occasions, organizations have gotten finance through Jenfi in less than 24 hours, however it usually takes a few days. The application process is entirely online. This is also another advantage over conventional working capital loans or private equity financing, which can take months to execute and make it challenging for businesses to react swiftly to possibilities for revenue growth.

Frequently Asked Questions

What is the main factor that affect my credit rating?

Consistent revenue streams are important elements for lenders to consider when assessing your creditworthiness. Digital footprint is also essential for the lenders, a plus point if they collect payment via payment gateway for tracking of sales revenue.

How does the loan disbursement and monthly instalment payment works?

The funds from the loan will be directly deposited into the applicant's primary bank account. Subsequently, on a monthly basis, the applicants will be required to submit their monthly bank statements to the lenders. The lenders will then assess the information provided and determine the percentage of the monthly revenue that will be allocated toward the repayment of the loan.

What is POS?

POS is a more efficient way to determine sales. It is a payment gateway or third-party collections services.

How Can Smart-Towkay Assist Us In The Application?

As partners with Revenue-Based Financiers, we maintain a close collaboration that enables us to negotiate more favorable terms on behalf of the applicants. Additionally, we offer an initial vetting and assessment process to identify the RBF lenders for which you meet the qualifications. We guide you through the paperwork, streamlining the process so that borrowers can enjoy a hassle-free experience while awaiting our approval.

Unlock Your Funding Potential Today! Apply Now and Let Us Secure Your RBF Success.