Glad you asked! Pretend that you own a food truck. You realize that you can cover more parts of town if you had one more truck under your brand. So, our fund reviews your current revenue and gives you a loan for $50k to purchase the next truck. Let's say that we determined that you can pay back 5% of your gross revenue each month to us until a multiple of 1.5x the original loan amount is reached.
This means that whatever your gross revenue each month, zero or otherwise, 5% is paid back to us until the grand total of $75k is reached. The loan is then satisfied. Financiers are happy with the placement because they made a 50% return - better than the market. The business owner is happy because they just doubled their business in a way that they barely even felt - no sweat.
For almost a century, RBF was a niche form of finance used in very specific sectors such as Oil & Gas, Mining, and Hollywood. It has become more widespread with adopted methods for different niches, such as SaaS, Hospitality, and Healthcare.
One downside is typical of any private placement. The business could completely go "bust" and the entire principal could be lost.
Another possibility is "zombie" syndrome. Zombies are companies that do not grow as promised. Since RBF doesn't have a definite cut-off date ("maturity date"), loan repayment can trickle on indefinitely.
Yes, RBF lenders usually cosign on the deposit account of the business in order to track and secure the payments. Second position securities are also placed upon the property and equipment of the borrower.
Yes, RBF can take a secure position by holding stock or ownership units in a company. The company pays a dividend, rather than gross revenue. Once the multiple is paid out in dividends, the ownership is then sold back to the company. We use this for seed rounds on companies that have not established revenue, yet make a strong case in their pro-forma. It benefits the company later, because valuation is set without having to permanently relinquish equity and never control.
Most hard working families have IRAs or 401Ks associated with their jobs. You can use that account to create a self-directed IRA and participate with it. It actually works better this way because you are able to appreciate the gains made over time.
Email us at LegacyDR@protonmail.com or call this number (307) 263-0760. Someone will contact you promptly.