Revenue-Based Financing

Revenue-based financing is also known as royalty-based financing. It is a form of financing sometimes used in connection with the sale of businesses as an alternate to the more commonly used debt financing.

In revenue-based financing, there are no fixed payments or interest. In a business sale, the buyer agrees to pay a percentage of the company's gross revenue until a predetermined amount has been paid. If revenue increases, payments increase. Likewise, if revenue decreases, payments decrease, but the amount owing overall remains fixed according to the purchase/sale agreement.

Revenue-based financing is usually more expensive than debt financing, but it is safer for the buyer of the business because payments are based on revenue received and are not fixed each month.

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