[4] Generally, RBF investors expect the loan to be repaid within 1 to 5 years of the initial investment depending on the model and the funded companies.
RBF is often described as sitting between a bank loan, typically requiring collateral or significant assets, and venture capital, which involve selling an equity portion of the business in exchange for the investment.
Seeing some initial success, he began a small RBF fund in 1992, which was found to perform on-par with expectations for the alternative assets industry, yielding an IRR of over 50%.
[11] Second, the business should have strong gross margins to accommodate the percentage of revenue dedicated to loan payments.
Because the loan is making payment each month, the RBF investor does not require the eventual sale of the business in order to earn a return.
This means that they can afford to take on lower returns in exchange for knowledge that the loan will begin to repay far sooner than if it depended on the eventual sale of the business.
RBF often is more expensive than bank financing,[10] However, few early-stage businesses seeking growth capital will have an asset base to support a commercial loan.