As a small business owner, exploring financing options can often feel overwhelming. You're probably familiar with traditional loans and perhaps even equity investment, but have you heard of Revenue Sharing Notes (RSN)? This innovative financial tool might just be the solution you're looking for, offering a unique blend of flexibility and simplicity. Let's demystify the revenue sharing note and walk through how it can be a powerful financing option for small businesses across lifecycle stage and industry.
What is a Revenue Sharing Note?
A Revenue Sharing Note is an investment vehicle where investors provide capital to a business and, in return, receive a percentage of the business's future revenue until a predetermined amount is repaid. Think of it as a middle ground between a loan and equity investment.
RSN vs. Traditional Loans
Unlike traditional loans, which require fixed monthly payments regardless of your business’s performance, RSN payments flex with your revenue. This means in leaner quarters, you pay less, and in stronger quarters, you pay more. It's a model that breathes with your business cycle, unlike the rigid structure of standard loans.
RSN vs. Equity Investments
When you opt for equity investments, you're giving up a portion of your company's ownership, which often comes with a loss of some control. With RSNs, there's no equity dilution. You retain full control of your business while still accessing the capital you need.
The Benefits of the RSN for Small Businesses:
Alignment of Interests: Investors are directly invested in your business's success. As your revenues grow, they benefit, creating a partnership-like dynamic.
No Collateral Required: Unlike secured loans, RSNs typically don’t require collateral, making them accessible to a wider range of businesses.
Simplicity: The terms are straightforward. You share a set percentage of revenues until the agreed-upon amount is repaid. There are no hidden fees or high interest rates.
Customer Loyalty & Increased Revenue: By going out to community investors, you can build brand awareness while accessing capital. Because investors are incentivized to help your business succeed, investors on average become more frequent customers and evangelists for your brand, which may increase average revenue.*
Is the RSN Right for Your Business?
Consider an RSN if you’re looking for flexible repayment terms, want to avoid diluting your equity, and have a clear path to revenue generation. It's especially suitable for businesses with fluctuating revenues.
Revenue Sharing Notes offer a unique, flexible financing option for small business owners. By aligning investor returns with your business success, RSNs provide a solution that adapts to your business's financial ebbs and flows. As you consider your financing options, think about how an RSN could fit into your broader financial strategy.
*Results such as increased revenue, brand loyalty, or fundraising success are never guaranteed. Every business is different and faces unique challenges regardless of financing methods. All investment involves risk. Consult a business advisor before beginning any new strategy. Never invest more than you can afford to lose.