What is the all the excitement regarding recurring revenue ( RR ) and how that relates to financing? I’ll get to that very shortly because I want to dispel one paradigm – that’s its only for SaaS companies. If you read that, the article is limited however, they aren’t wrong. Recurring Sales also apply to any firm who has any type of regular/formal billings. Yes, subscriptions are the main one but certainly not the only one. Membership means the same…it’s a subscription too thus it applies. Unless you have a long term or fixed Purchase Order, these revenues are typically open.
What are the mechanics to this facility?
The mechanics of recurring revenue financing allows you to access funds on a regular basis, creating a borrowing base that is calculated by establishing a multiple up to 6 times your monthly average revenues. That deferred revenue in the RR model is a tough nut to crack from a financing perspective and accessing a fixed percentage of fund inflows is a solid way to beat that challenge.
Recurring revenues arise out of contractual arrangements you have in place for your service/application. Contracts and client agreements like these allow your firm to have predictability in stable cash inflows for the length of your client agreement.
Qualifying…demonstrate your firm’s contracts and the cash payment terms from your contracts –monthly, quarterly, or in some cases annual payments.
As we noted, this in effect creates an established predictable borrowing base for cash flow and working capital needs to run the business. Those needs are typically in the area of working capital needs.
The ability to access business capital without the need for future private equity capital or other types of equity is by far the great attraction of funding those RR streams!
Interest rates for Revenue financing are mezzanine type rates – the attraction is access to capital versus the cost of capital for savvy entrepreneurs who understand the value of equity!
Is your RR business model eligible for simple and effective revenue-based financing loans? How do financing companies assess your application? You only need to demonstrate your firm’s contracts and the cash payment terms from your contracts – which as we noted might be based on monthly, quarterly, or in some cases annual payment depending on your company’s business model.
Does your funder have an option for your RR model? Searches online will help, alternatively, save your time and call us – we can action your model and rates within a day or two, no problem.