What Is the Main Downside to Revenue-Based Financing?
To be sure that it is the best move for the growing business that you own, you will need an understanding of the pros and cons of such a product.
Cost of Capital is High
RBF is similar to long-term credit-based-financing, so it involves taking on extremely massive factor rates. Since you will eventually pay with monthly revenues and take longer to pay part of the amount you owe to that provider, you will accumulate more interest overtime on that debt. Therefore, your debt amount will eventually add to a high total cost.
The monthly payments which RBF comes with will turn the paying part of the amount of money you owe more manageable, but these will make it so that the process of paying down itself takes longer. Therefore, the interest amount you accumulate will likely be very high—sometimes two times more than the amount which you have borrowed.
Of course, there are other downsides to revenue-based funding, but it is not that you should steer away from it. Consider all your options before making a decision on whether taking on RBF is right for your business.