In the fast-paced startup finance arena, Venture Capital has traditionally reigned supreme—but not without strings like equity dilution and loss of control.
In a telling shift, VC funding plummeted to $76 billion in Q1 2023, down 53%. The rise of True Sale-Based Financing (TBF) offers a fresh alternative that lets entrepreneurs raise capital by selling assets like contracts, all without surrendering equity or taking on debt.
TBF - Benefits and Considerations
While VC offers robust funding and mentorship, it comes at the cost of ownership. TBF provides quick liquidity without equity loss, though you may have to sell assets at a discount upfront. However other benefits of TBF are worth noting:
- Balance Sheet Boost: TBF quickly turns illiquid assets into cash, enhancing liquidity without adding debt or liabilities.
- No Dilution or Debt: TBF offers growth capital without diluting ownership or adding financial burdens, preserving company autonomy.
- Lower Capital Costs: Buyers often perceive TBF assets as lower-risk, resulting in a more affordable cost of capital for sellers.
- Flexibility: Sellers can choose which contracts to sell, offering tailored cash flow management based on business needs.
Considering TBF for startup financing? Here are the five essential factors to weigh:
- Contract Necessity: TBF is only applicable if you have existing customer contracts or other financial assets.
- Asset Identification: Know which assets you can sell—be it receivables, inventory, or future cash flows—and ensure they're attractive to buyers.
- Balance Sheet: Selling assets improves liquidity but reduces long-term return on assets (ROA) if those assets were revenue-generating.
- Use of Funds: Make sure the quick cash aligns with your goals, whether that's fueling growth, settling high-interest debt, or investing in R&D.
- Financing Cost: TBF costs can vary based on contract terms and non-payment risk. Factor this into your financial planning.
TBF can boost liquidity quickly, but a thorough analysis is crucial for long-term success.
TBF Journey with Ratio Trade
Ratio Trade enables businesses to transform existing contracts into immediate liquidity, requiring payments only when customers fulfill invoices. This unique feature allows companies the possibility of making zero payments for up to 12 months.
Firms can selectively sell contracts based on their cash flow needs, allocating the obtained capital toward a variety of purposes like working capital, M&A, hiring, or new product launches.
With a fast 48-hour approval process and capital transferred within days, Ratio Trade serves as an efficient way to lengthen a company's financial runway.
All this comes with the added benefits of zero equity dilution, minimal loan restrictions, and no cumbersome reporting requirements.
How Ratio Trade Works
In exchange for the service of fast-tracking business’ future cash flows, Ratio charges the firm a fee, known as the discount rate. This rate varies between 1% and 15+% of the value of the contract, influenced by factors such as risk level, contract length, and repayment conditions.
To present an example, for a 36-month contract with a value of $1,000,000 and yearly payment frequency, a 15% discount rate would result in an upfront cash payment of $850,000 from Ratio.
Unlock business capital through Trade in just five effortless steps:
Step 1 - Connect your banking, financial, and billing platforms to Ratio Trade through an easy-to-use portal.
Step 2 - Wait for Ratio's quick decision (approval or decline), typically within 48 hours.
Step 3 - Upload your yearly or multi-year contracts.
Step 4 - Get a cash proposal from Ratio for each submitted contract.
Step 5 - Accept the offer and see the funds appear in your account.
Schedule a demo today to dive deeper into Trade's capabilities.
Benefits of Using Ratio Trade
For an in-depth look at the Trade's advantages, visit our detailed comparison page - Venture Debt vs. Ratio.
Here are some key benefits for your quick reference:
- Preserve a debt-free balance sheet while avoiding equity dilution.
- Relish up to a 12-month grace period before initiating repayments.
- Experience lightning-fast approval within 48 hours, with quick fund disbursement soon after.
- Pay Ratio exclusively when your customer settles their invoice.
- Access funds up to 80% of ARR
TBF - Smart VC Alternative
As entrepreneurs prioritize equity retention and autonomous decision-making, they're switching to smart alternatives like TBF..
A TBF solution called Trade by Ratio stands out. It quickly turns future contracts into cash, offering up to 80% ARR, ensuring a swift capital infusion for businesses eager to grow.
Discover how Nextech3D.ai, a purveyor of AI-driven 3D models, secured $2 million in non-dilutive capital via Ratio. This advance against future invoices bolstered Nextech3D.ai's expansion, providing financial agility without sacrificing equity.
Join the savvy entrepreneurs choosing Ratio Trade to supercharge their financial strategies. Register today!