An Introduction to Royalty Financing

Apr 24, 2014

An Introduction to Royalty Financing

(Source: Entrepreneur Magazine Online)

What it is: Rather than fork over cash in return for an equity stake in your business, investors lend money for a guaranteed percentage of revenues for whatever the business is selling.

More than $100 billion-worth of royalty payments are made each year, according to The Royalty Exchange. The company is in the game itself with a website linking royalty investors and investees.

How it works: Business owners guarantee investors a percentage of their revenue over a period of time -- paying them back the advance of cash and then some. Deals usually run at 2 to 6 percent of increased revenue.

Deals can run into the millions of dollars. Royalty financing is well-established in industries from mining and music, in which revenue is steady when it is coming in, but also unpredictable.

Upside: This is a potentially great financing mechanism for business owners who need a quick infusion of cash for their enterprise, and...Read Full Article