In simple terms, income-based funding is funding provided to companies based on income potential. The company does not pay the loan every month, but the payment depends on the profits borne by the company.
The more profitable the company is, the higher the turnover, which means a higher monthly interest rate, which can be one fifth. Lower company profits mean fewer payments.
Lack of income-based funding
Price: The main disadvantage of this loan is the risk of taking it in the long run. You can easily pay two to three times your loan.
For lenders, this is more of an area of venture capital where payments and risks are higher than at the bank. Given that the average credit for a small business is in the range of 6 to 8 percent, there are many unnecessary costs if you contact an income-based lender.
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For example, to get $ 500,000 from a bank, you have to promise to pay around $ 600,000 at a 7 percent interest rate for five years.
The same lender based on the sale will cost you $ 1 million or more. Maybe the $ 500,000 you receive will benefit you, and the remaining $ 400,000 will ultimately be a decrease, so income-based financing can be the perfect solution.
There are many software success stories that start with one person in the basement and end with an IPO. Also, note that this model does not exempt you from any responsibility.
If you don't pay back your loan and your company goes bankrupt, the creditors will defend your commercial property. If you are a company, losing your computer, device or intellectual property can mean that.