the RBF, a new tool for lending when banks are cautious

Managing a start-up isn’t always easy, especially when it comes to cash flow.

Between the money spent to pay a supplier or its employees and the money recovered from paying a customer, the time can be long and difficult for young companies to bear. To survive in this period, which looks like a difficult end of the month, startups need working capital, that is, a cushion to wait for payment from customers.

To find money, they might logically think of using bank loans. But funding a cash need through a bank when you’re a young company can be difficult. ” To grow quickly and recruit new employees, we needed cash reserves. First we think about bank financing, but it is quite difficult in reality by the traditional system “says Nicolas Jaulin, CEO of Pysae, a company launched in 2014, which provides service software for public transport operators, which already raised funds in 2016. If Pysae presents growth of 30 to 50% according to its founder, these excellent prospects have not convinced the banks. The latter, in fact, grant their loans according to the assets and balance sheets of the companies that are generally weak for small digital companies.

An alternative to traditional loans for digital SMEs

Faced with this blind spot of bank credit, startups can resort to raising funds, for example, from venture capital companies. ” We raised funds in 2016 to develop ourselves, but we don’t want to do it again at the moment because it forces us to give up part of the capital. (and therefore the company’s governance power, editor’s note) “, explains Nicolas Jaulin. It is also more difficult to raise funds at the end of 2022. According to the study European State of Technology », published by the British fund Atomico on December 7, fundraising in Europe dropped by 18% in 2022 compared to 2021. There are so many factors that led the entrepreneur to resort to an alternative solution that emerged just a year ago in France: Revenue Based Financing (RBF ) or revenue-based financing.

Pysae therefore borrowed 250,000 euros over 12 months from fintech (financial start-up) Unlimited, “ to fund our business development “. Concretely, the RBF is a cash advance. A start-up can borrow a set amount to allow it to meet its working capital needs and thus make the connection between its expenses and its income when they are transferred ” It is a true cash supplier, RBF enables permanent cash consolidation (not to be left in the red, editor’s note) », sums up Nicolas Jaulin. Clearly, this tool is defined as a “ buy now pay later » (buy now, pay later) business version.

Platforms offering RBF offer attractive conditions. Financing in less than 48 hours for flexible repayment of up to 24 months. ” The month a company has not made an invoice, it may not pay the loan and pay twice as much the following month if it has been paid by customers “says Gabriel Thierry, CEO of Karmen, a young filmmaker offering this type of alternative financing. If this financing module, which arrived in France just a year ago, seems very practical, it still has rates well above those of bank loans: between 5 and 8% against generally less than 5% for traditional loans. rates that are higher, because these loans are riskier than traditional loans, as we focus on young digital SMEs who are therefore more fragile than traditional companies “, justifies Gabriel Thierry.

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Fintechs that analyze the activity and development prospects of their borrowers

Currently, three startups offer this financing alternative: Silvr, Unlimited and Karmen. To do this, they regularly take out loans from private lending companies, and then re-lend this money to their customers at a premium. The sectors they currently finance are limited to Saas (software services companies), e-commerce platforms” but soon also in the markets “says Julien Zerbib, CEO of Unlimited. As soon as a start-up requests a loan from one of these three players, the latter will study its business model and revenues. ” We are connected to all your management, banking, invoicing, service delivery tools. Thanks to this, we are able to finance companies with just 6 months, which banks do very little “, he boasts.

With the current period of high inflation and slowing economic activity, Karmen sees a ” strong increase in orders since December “. Silvr receives 500 loan requests per month and Unlimited more than 1,000 against 200 last May. But if these young fintechs put themselves in the blind spot of traditional credit, Karmen wants to clarify: “ We are a solution that comes to the rescue of startups, but not a rescue solution “. Fintechs offering RBFs do not accept all files, far from it.” We are very selective with our customers. Last month, for example, out of 1,200 credit requests, we only accepted 15 to 20 customers “, still specifies Julien Zerbib, adding that” it allows us to have (for now editor’s note) a very low default rate, close to 0. Therefore, it is difficult to satisfy an ever-increasing demand.

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If these three fintechs plan to expand to be able to fund more customers, it’s a safe bet that RBFs will only affect a small portion of digital SMEs in the coming years, much to the chagrin of all start-ups. ” We usually talk about the dynamism of software companies in the United States, but I think it comes also and above all from their financing possibilities. In France, we are lagging behind on these issues, which slows down the growth of our startups. » concludes Pysae’s CEO, who says he is very happy with the RBF system.