Revenue-based finance is becoming an increasingly popular way of raising capital for growing businesses worldwide, and there is no surprise to it – no dilution in combination with no personal guarantees make it a desirable funding option for all founders. However, before applying for any loan, it is good to know if this kind of raising capital is the right fit for whatever you are planning to use it for. 

Let's have a look at the most (and the least) suitable applications of RBF financing.

1. Development of a new product

Have a new product on your mind but no extra capital to make it a reality? Although taking money away from other business operations is a common practice, you do not need to make this unnecessary sacrifice. Expanding your portfolio is an excellent example of how to use a revenue-based finance loan to grow your business, and it comes with two significant advantages: first, you can receive your capital very fast (hence saving a lot of time) and second, you can get the exact sum of money that you really need.

2. Improving your KPIs

If you are planning to approach a Venture Capital provider, it might be the case that your company is not ready for it yet – especially in terms of critical KPIs. A financial injection in the form of a revenue-based finance loan will give you an opportunity to work on improving your business and increasing its value, which can eventually win you a much better deal.

3. Scaling up the team

Some companies´ growth depends solely on their number of employees, so asking for a loan to hire new staff is an essential part of scaling up your business. If your company happens to be one of those, stay assured that revenue-based financing is the right choice for you.

4. International or market expansion

Many growing businesses decide to offer their products or services in other countries or to enter new markets with different customer segments. Once again, rather than taking resources away from your other activities, it is a good option to raise revenue-based capital, which will help you to cover the costs of this expansion.

5. Boosting sales

Investing in marketing, conferences, sales events or improving your customer acquisition activities are just some of the examples, how your business can improve its sales and overall performance. 

6. Growing without losing any control

While it is much easier to grow your company with much-needed capital, many business owners prefer to avoid any external financing because of the disadvantages that come with it. However, growing without any financial help can be very slow and difficult. In this case, a revenue-based financing loan is an acceptable middle ground between these two – and while providing capital, it allows businesses to grow on their own terms and avoid any dilution and loss of control. 

Which uses are not the right fit for revenue-based finance?

As mentioned earlier, revenue-based finance is not a suitable financing option for each scenario.
Among those, we can mention the following:

1. Repayment of an existing debt

Contrary to how it may seem, seeking funding to get your company out of any existing debt is not a good idea at all – when acquiring revenue-based financing, your only goal should be growing your business (unless the debt is not the main blocker to your growth).

2. Long-term research and development

Yes, development of a new product is a suitable use of a revenue-based financing loan. However, if you need capital to finance a long-term R&D effort for which it can take a minimal 2 years to show any results, it is better to seek funding elsewhere.

3. Insufficient growth opportunities

Whether your business is growing at the moment and if it has a potential of further growth in the near future are important factors in determining if revenue-based financing is the right choice for you. However, if none of these apply to your company right now, you can still come back and try again when you are ready – you just need to work a bit more for it. 

Your intended use of RBF is nowhere to be found in this article? Do not hesitate and let us know, our team will be glad to answer any of your questions!