More and more e-commerce companies are turning to revenue-based financing. This solution, which is establishing itself as an alternative to traditional bank loans, is winning over startups, enabling them to be financed in return for a percentage of their sales.
A gradual arrival in Europe
Revenue-based financing is just beginning to make an appearance in Europe, and particularly in France. Several fintechs are now offering this financing solution, including France's Silvr, Karmen and Unlimtd, Luxembourg's Valerian and Spain's Ritmo. Aware of the complexity of granting bank loans, the reluctance of banks to lend to start-ups and the need for flexibility on the part of companies specializing in online sales, these players have automated almost the entire financing process.
Revenue-based financing works simply. The startup logs on using the tools provided by the platform to check its eligibility for the scheme. Algorithms perform a detailed analysis of the company's situation, performance and scalability. In the event of a positive response, funds can be released within 24 to 48 hours. A few months later, the startup begins repaying the funds. The monthly instalment is calculated on the basis of performance achieved during the month. This is the main difference between this solution and a conventional bank loan.
Fast response times
Platforms specializing in revenue-based financing are able to validate financing requests in less than 48 hours. Unlike banks, which rely on annual administrative and tax documents, these players take account of company performance in real time.
Poiscaille, specialized in the delivery of fresh French fish, has experimented with " revenue-based financing " by obtaining a 550,000 euro envelope from Silvr, in the form of payments of its supplier invoices. Interviewed by Les Echos newspaper, co-founder Charles Guirriec explains that 14.8% of the company's sales are deducted each week, with commission set at 4.7%.
Aware that this solution is more expensive than traditional credit, the startup believes that it "meets its short-term cash flow challenges".
Help in launching fund-raising campaigns
The cash advance obtained through revenue-based financing is very attractive for companies preparing to raise capital.
The young women's ready-to-wear brand, Stella & Suzie, found itself in just such a situation in 2020, with a net profit of 70,000 euros and a substantial working capital requirement (WCR). To avoid diluting its capital, the company turned to revenue-based financing with the Ritmo platform. In return for a 5% commission, it was able to obtain financing of 260,000 euros in 2021, which enabled it to smooth its cash flow and helped reassure investors.