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.

 

Mezzanine Debt

Mezzanine debt is a type of hybrid debt that is subordinate to other debt. It is frequently associated with acquisitions, mergers and buyouts. Mezzanine debt is often long term debt with flexible repayment terms. The loans often provide the lender with warrants or options.

 

Private Money - Private Money Lenders

Private money refers to loans made to individuals, companies, and other entities by non-institutional individuals or private lenders. These loans normally carry higher interest rates than institutional loans made by banks, credit unions, and insurance companies because these institutional lenders generally have more stringent underwriting requirements. Private money lenders generally rely more on the asset value of collateral and less on the credit rating and/or the cash flow or income of the borrower.

 

Evergreen Loans

An evergreen loan is a revolving line of credit requiring the borrower to pay only monthly interest. The principal is expected to be made at the end of the loan term which is usually two to three years from the effective date. These loans are regularly extended by the lender at maturity making them long term loans.