Cash: revenue-based financing, an alternative to bank loans



Provisional management of stocks, real estate investments, marketing campaigns… Many expenses fuel the cash flow gap and can reduce business growth. To finance the working capital requirement (WCR), banks are privileged interlocutors. But the complexity of the process for granting bank loans, the reluctance vis-à-vis the start-up model and the need for flexibility are all obstacles for companies whose main activity is based on online sales.

Fintechs are providing a new financing solution: revenue-based financing. Among them, the French Silvr, Karmen or Unlimited, the Luxembourgish Valerian and the Spanish Ritmo. Even American e-commerce giants like Shopify and Stripe are getting into it. Their services, currently limited to the United States, should soon arrive in Europe.

These companies have digitized and quasi-automated the process. The principle is roughly the same each time: the fintech connects to the company’s audience measurement tools, its advertising management, its collection software and its CMS to collect as much data as possible on the potential of growth. It then grants a line of credit, the repayment of which is staggered according to the turnover recorded.

Overcome the cash flow gap

These platforms are able to validate a funding request in less than 48 hours. A small revolution compared to banking delays. “Unlike banks, which rely on annual tax and administrative documents, we analyze the company’s performance in real time”, explains Gabriel Thierry, president and co-founder of Karmen. The Parisian fintech, created in July 2021, already has 18 employees. Its core target is marketplaces and SaaS software (software as a service) in BtoB.

The nature of the financing, cash, factoring or virtual bank card, varies from one platform to another. Poiscaille, a start-up specializing in the delivery of baskets of wild fish, experimented with revenue-based financing to respond to a problem of structural immobilization of funds, linked to the nature of its activity. “We wanted to develop canning to capitalize on large peaches. But we needed funds to buy this large quantity of fish and pay the fishermen within seven days,” sums up Charles Guirriecco-founder of the start-up which claims a turnover of 7 million euros in 2021 and 65 employees.

Poiscaille obtained initial financing of 550,000 euros via the fintech Silvr in the form of payment of its supplier invoices. “14.8% of our turnover is taken every week and the commission has been set at 4.7%”, explains Charles Guirriec, who obtained another financing of 500,000 euros to renew his stock of packaging before an anticipated price increase and to secure the rental of a warehouse in Wissous (Essonne). “It’s a more expensive solution than a bank loan, of course, but it meets our short-term cash flow challenges. »

Calmly prepare a fundraiser

“This cash advance also gives us more time to negotiate with investors,” adds Charles Guirriec, who is considering a next fundraiser. A situation experienced by the ready-to-wear brand Stella & Susie. “In 2020, we only had 70,000 euros in net profit with a substantial working capital requirement (WCR) which threatened our double-digit growth, testifies Maxime Minguezco-founder of this digital brand with his partner Margaux Lahana, at the end of the first confinement in May 2020. No question of diluting the capital from the launch with a fundraiser! »

Stella et Suzie therefore used revenue-based financing via the Spanish platform Ritmo, for a commission of around 5%. “We obtained financing of 260,000 euros in 2021 to balance our cash flow and put the lights on green when meeting investors, recalls the entrepreneur. We have smoothed our cash flow in order to be in good financial health at the time of negotiation, which has enabled us to welcome our favorite investor to the capital,” says Maxime Minguez. Good pick since the company of 36 employees raised 2.5 million euros in March 2022.

Revenue-based financing is just emerging among business financing tools. And if this market is still restricted to digital start-ups, it is opening up more and more to SMEs and ETIs. “Even offline businesses now use software: a beauty salon, for example, will outsource its reservations,” judges Nima Karimiwho founded Silvr in early 2020. “We primarily target digital-first players, but we are also interested in companies that are migrating an increasing part of their activity online,” adds the manager of this Ile-de-France fintech, which already employs 70 people. .

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