This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

Business in Revenue Mode? You May Not Need Bank Loan

SEATTLE ( MainStreet) -- What do bouncy castles, online yoga classes, online medical-solution software, a chocolatier and social media tools have in common? They're all businesses that have been funded through revenue-based financing.

Lighter Capital specializes in revenue-based financing. In just over a year since it launched, the company has done 20 transactions in 14 companies totaling roughly $2 million through its RevenueLoan product. The company mainly invests in software and high-margin, high-growth companies like software firms, but also seasonal businesses.

A lighter side of capital: revenue-based loans offer an alternative to bank lending.

Rob Belcher, Lighter Capital's vice president, explains what revenue-based financing is and how to make it work for your company.

How does revenue-based financing work?

Belcher: Revenue-based financing is a loan where we get a percent of revenue going forward until the loan principal is repaid plus interest. Payment is variable and it fluctuates in any given month. That's the beauty of the royalty of the revenue-based financing. The payment is based on a royalty or percentage of revenue.

We invest $50,000-$500,000 and that generally is into companies that are doing at least $300,000 in trailing 12-month revenue up to $5 million in revenue. Obviously that means that they've got to have revenue, it's not for pre-revenue startups.

What do these companies generally use the funds for?

Belcher: The company had a boost in sales and funds are tied up to execute . They are poised to explode on the sale and revenue front and need to hire a salesperson or marketing campaign. Those are generally good use of funds on the model.

We tend to lend 10%-30% of a company's annual revenue.

The model works very well with companies that are high growth -- 50% growth margins or better -- and able to scale their sales.

It's not a good use for working capital because working capital doesn't grow sales. The core use of our loan is sales or marketing related.

To some degree working capital constraints are a good fit for us when it means you have more sales that you are making but you're not getting paid yet, but you have expenses. If you're a pretty flat business and you need working capital, that's not a good business.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
AAPL $128.46 0.00%
FB $78.97 0.00%
GOOG $558.40 0.00%
TSLA $203.34 0.00%
YHOO $44.28 0.00%

Markets

DOW 18,132.70 -81.72 -0.45%
S&P 500 2,104.50 -6.24 -0.30%
NASDAQ 4,963.5270 -24.3630 -0.49%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs