Improving your cash flow: Revenue-based financing, as an alternative to bank loans

Managing stock forecasts, real estate investments, marketing campaigns… Many expenses feed the cash flow gap and can reduce business growth. For financing working capital requirements (WCR), banks are prime hubs. But the complexity of the process of granting bank loans, reluctance to the startup model and the need for flexibility are all obstacles for companies whose main activity is based on online sales.

Fintechs introduces a new financing solution: revenue-based financing. Among them is the French Silver, Carmen Or unlimited, Luxembourgish valerian The Spanish Ritmo. Even American e-commerce giants like Shopify and Stripe are getting into it. Their services, which are currently limited to the United States, should soon reach Europe.

These companies have digitized and semi-automated the process. The principle is almost the same every time: Fintech connects to a company’s audience measurement tools, its ad management, its aggregator software and its content management system to gather as much data as possible about its growth potential. It is then granted a line of credit, which is to be repaid intermittently depending on the volume of business recorded.

Overcoming the cash flow gap

These platforms are able to validate a funding request in less than 48 hours. Small revolution compared to bank delays. “Unlike banks that rely on annual tax and management documents, we analyze company performance in real time,” he explains. Gabriel Terry, president and co-founder of Karmen Corporation. The Parisian fintech company, which was created in July 2021, already has 18 employees. Its primary objective is the markets and SaaS programs in BtoB.

The nature of financing, cash, factoring or a virtual bank card varies from platform to platform. Poiscaille, a start-up that specializes in delivering baskets of wild fish, has experimented with revenue-based financing to respond to the problem of a structural freeze of funds, linked to the nature of its business. “We wanted to develop canning to take advantage of the larger peaches. But we needed money to buy that much fish and pay the fishermen within seven days,” the bottom line gryoud cloudsone of the founders of the startup that claims to have a turnover of 7 million euros in 2021 and 65 employees.

Poiscaille has secured seed funding of €550,000 via fintech Silvr in the form of bill payments to its suppliers. Explains Guillaume Gréaut, who has secured another €500,000 in funding to replenish his stock of packaging before the expected price increase and to secure the purchase of a warehouse in Wessos (Essonne). “It’s a more expensive solution than a bank loan, of course, but it meets the challenges of short-term cash flow.”

Quietly prepare for fundraising

“This cash advance also gives us more time to negotiate with investors,” adds Guillaume Greault, who is considering a next fundraising exercise. A situation experienced by the ready-made clothing brand Stella and Suzy. “In 2020, we only had €70,000 in net profit with a big WCR which threatened our double-digit growth,” he testifies. Maxim Mingsco-founder of this digital brand with his partner Margot Lahana, at the end of the first booking in May 2020. There is no question of diluting the capital from the fundraising launch! »

So Stella et Suzie used revenue-based financing via Spain’s Ritmo platform, for a commission of around 5%. The entrepreneur recalls: “We secured €260,000 financing in 2021 to balance our cash flow and put the lights in the green when meeting investors. We smoothed out our cash flow in order to be in good financial shape at the time of negotiation, which enabled us to welcome our investor Favorite in the capital ”, says Maxime Minguise. A good choice because the company with 36 employees raised 2.5 million euros in March 2022.

Revenue-based financing is just beginning to emerge among business financing tools. And if this market is still limited to digital startups, it is opening up more and more to SMEs and ETIs. “Even offline companies are now using software: a beauty salon, for example, will outsource the booking,” he rules. Naama Karimiwho founded Silvr in early 2020. “We primarily target digital players first, but we are also interested in companies that are migrating an increasing part of their business online,” adds the director of Ile-de-France fintech, which employs 70 people.

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