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Revenue-Based Financing Term Sheet: Secrets That They Never Tell

Revenue-Based Financing Term Sheet: Secrets That They Never Tell

In a revenue-based financing term sheet, you’ll find information such as the funding amount, fees and retrieval percentage. This article covers the topic of revenue-based financing term sheet, revealing secrets and terms in a term sheet that financiers never tell you.
Written and published by
Brian Tsang

Every chef has a secret sauce. It works wonders on the dishes, making them so tantalizing to the taste buds and your soul that you keep re-visiting over and over again.

At Choco Up, we provide revenue-based financing. We don’t have a secret trick that magically increases the value of money, but we do have something that keeps people coming back.

It’s something in the revenue-based financing term sheet. It’s something that financiers never tell you, until you apply for funding and talk to them and see what’s in that term sheet.

But we want to share it with you.

Today we’ll talk about revenue-based financing term sheets. We’ll cover what a term sheet is, what is included in it and how it compares with an agreement.

Are you ready for a ride to satisfy your curiosity? Let’s go!

  • What is a term sheet?
  • What is a revenue-based financing term sheet?
  • What will you find in a revenue-based financing term sheet?
  • How is a term sheet different from an agreement?
  • What is the role of a term sheet in the RBF funding application process?
  • Some last words

What is a term sheet?

Generally speaking, a term sheet is a document which sets out the basic terms and conditions of an investment.

It is non-binding in nature, meaning that no party is obligated to proceed with or complete the transaction in accordance with the content of the term sheet.

A term sheet does, however, serve as the foundation of a legally binding agreement, if one is ever drawn up (more on this later).

What is a revenue-based financing term sheet?

Although revenue-based financing (RBF) is not a form of investment (it’s a type of funding), a term sheet is usually used to lay out the details of RBF funding.

Typically, a revenue-based financing term sheet is the earliest of when you receive information on the terms of funding, such as how much funding you can get, and the fee involved.

What will you find in a revenue-based financing term sheet?

Understanding the key terms in a revenue-based financing term sheet is crucial for anyone who wants to obtain RBF funding.

You need to know what you’re signing up for, so that you can make an informed decision about whether to proceed with the deal.

Following, we’ll explore three key terms that you’ll find in a revenue-based financing term sheet. 

1. Funding amount

The websites of most revenue-based financing platforms only show a range of the funding amount they provide.

The funding amount is sometimes expressed in multiples of your monthly recurring revenue (MRR). All you get is an estimate.

In a revenue-based financing term sheet, you’ll find the exact amount of funding you can get, so you no longer have to speculate.

→ Illustrative example: A term sheet lets you know that $60,000 of RBF funding will be provided to you.

*All figures shown in this article are examples only.

2. Fees

On the websites of revenue-based financing companies, fees are commonly stated as a range of percentage (e.g. 4% to 10% of the funding amount). 

“It depends on risk assessment and varies on a case-by-case basis” is what the web pages say.

A term sheet, on the other hand, tells you the exact fee to be paid in monetary terms. 

→ Illustrative example: A term sheet will state that total repayment is $64,800, which means the fee is 8% of the funding amount ($60,000).

At Choco Up, we promise to take nothing more than a small flat fee. We’ll make it clear in the term sheet, so you can work with us with the peace of mind that there’ll be no hidden surprises.

3. Retrieval percentage

As the funding will be repaid through revenue-sharing, the term sheet states the percentage of monthly revenue that you’ll share with the RBF platform.

The portion of revenue that you share is called a retrieval percentage.

→ Illustrative example: If the term sheet states a retrieval percentage of 6% on all monthly periods, you’ll share 6% of your monthly revenue towards repayment.

How is a term sheet different from an agreement?

When it comes to business financing, we’re aware that terminology could be confusing.

A common misconception is that a “revenue-based financing term sheet” and “revenue-based financing agreement” are one and the same, when they actually refer to two vastly different documents.

Here is how the two compare.

1. Term sheet is the ‘foundation’ of an agreement

A revenue-based financing term sheet includes the key terms you’ll likely see in the final contract.

Upon reviewing the term sheet, if both parties agree on all major aspects of the deal, a contractual agreement will be drawn up.

Put simply, a term sheet acts as the ‘foundation’ of a revenue-based financing agreement.

2. Term sheet is pre-contractual

The most important function of a term sheet is to provide the key terms and conditions of funding at an early stage.

It’s a document prepared prior to the drafting or signing of a contract, giving an efficiency boost to the funding process.

The funding provider can save the time and expenses of drawing up elaborate contracts for applicants.

The applicant, who is yet to decide whether to take up the offer, need not spend days reviewing wordy legal documents either.

3. Term sheet is non-binding

While a term sheet is non-binding in nature, a signed agreement is legally binding.

You may view a term sheet as an ‘expression of interest’ to provide funding to you. Neither party (you and the funding provider) has an obligation to act in accordance with the term sheet.

An agreement, on the other hand, represents a ‘promise’ by the parties. Once signed, both contracting parties are obligated to proceed with the deal according to what is written in the agreement.

→ Quick summary: A revenue-based financing term sheet differs from an agreement in terms of its role, timing and nature. A comparison table is provided below.

 

Revenue-based financing term sheet

Revenue-based financing agreement

Role

Foundation of the contract

This is the the contract itself

Timing

Provided before signing the contract

This is the the contract itself

Nature

Non-binding

Legally binding


What is the role of a term sheet in the RBF funding application process?

After exploring the topic of revenue-based financing term sheet vs. agreement, we’ll walk you through how you can apply for RBF funding (using Choco Up as an example).

It helps you get a better grasp of the application timeline from start to finish, as well as the roles that a term sheet and agreement play in the process.

RBF funding application process

1. Get a preliminary offer

Upon filling out key information about your business and securely connecting your sales and/or analytics accounts, a preliminary offer will be available on Choco Up’s proprietary fintech platform.

The process is artificial intelligence-driven, so it only takes a few minutes to get a preliminary offer. It’s 100% free of charge. Try it out here!

2. Talk to our team

At Choco Up, we understand that many qualitative aspects of business management cannot be captured through computer rules and algorithms.

If you’re considering applying for revenue-based financing, you’re always welcome to discuss with us your financial needs and share your business aspirations.

With a unique combination of AI analytics and industry expertise, Choco Up creates a seamless experience for funding applicants, supported by leading-edge technology with a personal touch.

3. Review your revenue-based financing term sheet

A term sheet spells out key information of the funding arrangement, including the funding amount, the fee you have to pay (only a small flat fee!), retrieval percentage and repayment milestone.

In this step, you’ll review the term sheet and decide whether to accept the funding offer.

Upon your signing of the term sheet and giving the green light, we’ll swiftly kick start the due diligence process. We’ll also get back to you with a revenue-based financing agreement asap.

4. Sign a revenue-based financing agreement

The next step involves signing the revenue-based financing agreement.

This contract is where you’ll find even the most granular details of the funding arrangement.

It gives you certainty about how the funding and repayment process really works.

A revenue-based financing agreement is also important for protecting the rights of both contracting parties.

As a contract is signed, this stage marks the parties’ commitment to proceed with the funding arrangement accordingly.

5. Receive RBF funding

Coming up next is the deployment of funds.

We understand the importance of having quick access to capital in the fast-paced world, so we’ll make it quick. You’ll receive funding as soon as 24 hours after agreeing to the terms.

6. Apply for additional funding

As you draw close to spending the entirety of your funding, you may need more capital.

This is when you may take a top-up from us, injecting new cash to fuel your business’ growth.

Fun fact: 90% of our clients apply for a top-up advance with Choco Up! Check out the stories of our happy clients here.

→ Quick summary: nderstanding the procedures of RBF funding application helps you get a grasp of the roles that a term sheet and agreement play in the process.

In brief, below are six stages that you’ll go through when you apply for RBF funding at Choco Up:



  1. Get a preliminary offer
  2. Talk to our team
  3. Review your revenue-based financing term sheet
  4. Sign a revenue-based financing agreement
  5. Receive RBF funding
  6. Apply for additional funding

A final remark: Although we’ve spent a lot of time elaborating on the process, it’s actually quick and easy! When everything goes smoothly, funding could be available in as soon as 48 hours. 

You can get started by claiming your preliminary offer here.

Some last words

In our experience, the level of interest in the content of a term sheet is probably no less than diners’ interest in what makes a chef’s secret sauce.

If you’ve never worked with a revenue-based financing platform before, the content of a RBF term sheet is probably a mystery to you.

As part of our ongoing mission to advance financial inclusion across Asia, we also hope to increase transparency about how revenue-based financing really works, so that you’ll feel safe and secure when working with us.

To learn more about how Choco Up could help your business grow, check out our client success stories or apply for funding now!

About Choco Up

Founded in 2018, Choco Up is the leading revenue-based financing platform in Asia Pacific, offering non-dilutive growth capital to fast-growing companies. 

Currently covering more than 10 markets and 10 sectors, Choco Up has helped hundreds of businesses capture growth while protecting equity upside.

Click here to apply for RBF funding!

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