How To Avail Business Loan Without Diluting Equity Amidst The Pandemic?

This pandemic hasn’t been kind to any of us. 

While the entire world is trying its best to stay healthy and safe, entrepreneurs worldwide are also trying to ward off bankruptcy.

Fortunately, with the availability of multiple sources of funding for MSME these days, businesses can keep their venture afloat. 

Though the financing options are many, some are better than others.

For example, some financing options require entrepreneurs to stake their company’s equity. Such a financing means may come in handy at times of a financial crisis but at what cost?

This pandemic caused havoc on all businesses, regardless of their size and scale of operations. But that still does not justify why you need to give away a portion of your ownership in your business to investors or lenders.

To remedy this situation and to ensure that you don’t dilute your equity in these pressing times, opt for better alternatives, like – Revenue-based financing.

Take a quick look below to find out how you can access loans without diluting assets in this pandemic.

Revenue-Financing At A Glance

Popularly known as royalty-based financing, this funding option is targeted towards SaaS and D2C businesses. 

It is an excellent means to resolve a capital crisis without providing any collateral or giving away ownership of the business.

How Exactly Does This Financing Option Work?

When you opt for revenue-based financing, you will be leveraging your projected monthly or annual revenue to access proportionate funds. 

In other words, as the borrower, you do not need to pay interest or offer a share of your company’s ownership.

Essentially, this financing method shares traits with both equity and debt-based financing. However, its underlying concept is entirely different from those two methods.

Above all, the USP of revenue-based financing offered by fintech companies like KredX is that you do not need to visit the lender in person to either apply or complete application formalities.

The entire process, starting from application to funding disbursal, is carried out digitally. This is one of the greatest perks of this financing method during this pandemic. 

As the health norms require us to practise social distancing, this particular feature will ensure a hassle-free borrowing experience and the safety of the people involved.

Steps To Raise Funds For Business Through Revenue-Based Financing

Here’s an easy breakdown of the steps involved to raise funds for business via this financing method. 

Step 1: Select a lending institution that offers these services at agreeable terms & conditions.

Step 2: Sign up on the portal with essential credentials.

Step 3: Upload the required set of documents on the portal to access growth capital.

Step 4: Post verification, the fintech company will analyse your recurring expenses, revenue records, and projected earnings of the past.

Step 5: Once the analysis is complete, the fintech company will estimate the fundable amount. 

Note: A certain portion of the actual estimated earnings will be offered to you for a predefined period, based on the projection. 

Step 6: Subsequently, funds will be credited to your account.

Remember, once you access the funds, you will have to pay a fixed % of earnings throughout the scheduled tenure until you repay the borrowed sum. 

Then again, this payment structure may vary based on your choice of lending institution. 

So, how do you choose an excellent financier who could help you access funds without diluting your equity?

Simple! Just weigh in their offerings and limitations.

Things To Weigh In While Choosing Revenue-based Financing

Keep these things in mind when looking for a source of growth capital from a financier and make your borrowing experience in this pandemic less difficult.

• The Need For Collateral 

Generally, revenue-based financing does not require borrowers to provide any collateral asset. You can leverage your estimated earnings to access funds.

• Disbursal Time

Selecting a lender who provides access to capital at the earliest can prove useful in times of financial crisis like this. 

• Repayment Tenure

Opting for a revenue-based financing option that will allow you to repay the borrowed sum at your pace will be the best of the lot.

The pandemic-induced restrictions and questionable healthcare infrastructure have shaken the very core of our economy. 

Almost all businesses, regardless of their size, are battling the blow of this economic crisis. In a scenario like this, having access to timely capital is a blessing for SMEs and MSMEs. 

Thanks to alternative funding methods like revenue-based finance, businesses now have the way to access required funds without diluting their equity or adding on to their existing debt.

That said, make sure to pick the best lending institution to cater to your capital requirements and for a less stressful borrowing experience.