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The Pros and Cons of Royalty Capital Funding

Traditional lending solutions don’t work for some businesses.

Perhaps the company doesn’t meet the underwriting standards. Or maybe they do, but they can’t negotiate the terms that they want.

If that sounds like your situation, you shouldn’t try to make it work. Instead, you can seek out alternative funding sources like royalty capital.

Royalty capital funding is a financing method where you get capital in exchange for a slice of your future revenues.

Of course, you’ll want to talk with an expert before you pursue royalty capital — both to understand if it’s right for your business and find lenders offering it. Fundvisor can examine your financial situation and determine if royalty capital funding suits your business.

We also recommend reading our royalty funding pros and cons list below to better understand this form of financing before speaking with us.

The Pros of Royalty Capital Funding

Can Help Lead to Other Financing Sources

The quick infusion of cash that royalty financing provides could be just what you need to boost your sales and improve your business finances. Getting other forms of funding will be much easier down the road.

No Debt or Equity

Debt means you owe someone money plus interest, and equity means someone has a say in your company’s operations.

Fortunately, royalty capital involves neither. No debt means no extra liabilities on your balance sheet. No equity means you won’t have an outside investor advising you on how you run your business — not to mention fewer securities laws to deal with.

Negotiating For Better Cash Flows

In some cases, you may be able to negotiate a lag time between when you earn revenue and when you must pay out royalties. During this lag time, you can invest your savings back into your business to boost sales further.

You could also establish a grace period at the beginning of the deal where you can earn revenue without owing royalties. You’ll have extra time to kickstart sales, yet have your royalty funding in the back of your pocket.

Many investors are okay with this arrangement because the payment terms are better than equity. Under an equity agreement, investors don’t earn anything until they sell their shares of stock.

A Vote of Confidence In Your Business

It’s worth noting that investors giving you a royalty deal is a good sign that you’re doing something right. Investors sift through a lot of your financial data and think hard before agreeing to a royalty arrangement — they won’t do a deal that won’t get them paid.

The Cons of Royalty Capital Funding

May Be Difficult For Startups to Obtain

Stable revenue is a significant selling point for striking a royalty capital funding deal. Startups unable to demonstrate this data could have a tough time. You shouldn’t rule it out — you can leverage experts like Fundvisor to find funding that works for you.

Can Be Expensive

Royalty deals can take a long time to pay off. Your arrangement could end up costing a lot more than another form of debt — especially if the royalty amount is high.

Doesn’t Work Well For Tight Profit Margins

If your business has tight profit margins, you need every dollar you can get. Royalty capital funding takes a bite out of that already-slim margin, making it tough to keep your business afloat.

Is Royalty Capital Funding Right For You?

Does your business have a strong track record of sales? Are you poised for fast future growth? If so, you should consider doing a royalty deal with an investor.

But it’s hard be sure that royalty capital is the way to go, especially since it’s not a conventional (and thus less understood) form of financing. Fundvisor has a thorough understanding of this unique funding method — we’ll look at your financial situation, then weigh royalty capital against your other options.

Should royalty capital be the best choice, we’ll serve as your partner by helping you find sources of this form of financing. Even after you strike a deal with investors, we’ll be by your side to help you seize future opportunities.

Schedule your free 30-minute consultation with Fundvisor today.

Fundvisor is here to help if you aren’t sure which short-term financing source is right for you. We’ll deal with the paperwork and phone calls for you so you can get the funding you need without wasting valuable time.

Let's See How We Can Help You!

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