Let’s talk about revenue based financing for Belgian e-commerce companies

E-commerce business is booming! A recent Forbes analysis claims that the global e-commerce market is expected to grow by $10.87 trillion (yes, trillion!) during the forecast period of 2021 to 2025 🤑 This translates into an impressive compound annual growth rate close to 30%.

Despite that, it hasn’t been an easy financial ride for a lot of e-commerce companies. One reason being the lack of funding for DTC brands, which isn’t that surprising given some recent failures.

Next to that, you’ll need to pay for your stock upfront 😶 Unless you did a funding round of crowdfunding, you’ll have to get that money out of your own pocket. And don’t forget about all the recent supply chain issues. This means that sometimes, you’ll have to build a big stock. Otherwise, there’s the risk of selling out and losing out on opportunities 😬

For a lot of younger brands, bank debt financing is often not an option, or only in small sums. Young businesses often have very little track record, and combined with equity readily available, it makes financing to buy stock and covering working capital a big issue.

At dear digital, we often experience that stock financing is one of the biggest reasons that’s holding e-commerce brands back from scaling.

That’s where Revenue Based Financing (=RBF) comes in. I feel like RBF isn’t commonplace in Belgium today - us Belgians often run a bit behind when it comes to things like these 😉 But it’s not a new thing: in fact, Shopify has had its own ‘Shopify Capital’ since 2016 and they already funded businesses for over 3 billion dollar.

Soooo…. What’s RBF?

Is RBF a loan? Equity? No and no.

It’s something completely different. In short, RBF is a financing solution in which RBF platforms provide funding to help companies grow. The capital plus a flat fee is repaid through a portion of the recipient company’s monthly revenue.

Sounds like a loan to you? Not exactly: there’s no interest on outstanding balances, nor are there scheduled payments in fixed amounts. The repayment is most often directly proportional to the company's revenue potential. If things go well, you’ll be paying back more, and vice versa.

It’s a type of ‘royalty based financing’: you raise capital by promising future sales in exchange for funding.

While it’s a great system for young brands, there’s one ‘catch’ to RBF: it’s often more expensive than bank debt 😯 Most of the time, there’ll be a cost of 0.8-1.5% cost per month. So, be thoughtful about the amount of money you loan from the other party - too much will be costly, but too little will make you scale slower. So, make sure to do your research!

Should you be looking into RBF?

RBF is most often used to finance high inventory or ad spend. It’s often used to cover peak periods, such as Christmas. Whether you’re eligible or not for RBF, depends on a few things. Keep in mind that every capital provider has its own requirements! Most of the time, they’ll be requiring this:
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• You have to be an e-commerce business
• You need about 6 months trading history (via one of the recognized platforms such as Shopify)
• Monthly average sales >20k
  

This type of financing is most often used by medium sized or earlier stage companies that have difficulty to find (enough) funding through traditional channels. Some of the challenges can be lack of track record, lack of assets, lack of equity investment,…

One other thing to look into beforehand, are the repayment fees 💸 Those are usually between 6-12% of revenue, based on whether you plan to invest the funds in predictable revenue-generating activities like advertising or higher-risk activities like hiring.

Who are Belgian RBF providers?

There are quite a few Belgian providers! The most well known are:
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• Clear.co
• Uncapped
• Wayflyer
  
  We’ve looked into the different options and feel like Wayflyer is the best option. That’s because:
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• They’re the cheapest in the market
• The money is directly put into your bank account, others often require you to upload your invoices
• Boots on the ground: they actually have people here in Belgium who you can talk to and know the e-commerce landscape pretty well

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