Revenue Based Financing
Actually, it is net profit financing. Uncle gives 150K to niece for business. He will receive 10% of the net profits until business pays him off. After that he will receive 250,000 based on the same 10% formula. When that is paid off, he gets like 5% for a period time. My question is, since this is some type of loan, is there interest included in the payments when they are tyring to pay of the 140K. If there is , it wouldnt be logical, because she is only going to pay him the 140,000 and only then pay of the 250K which may or may not happen based on what happens to the business.
10% of the net profit will probably sink the business, unless it’s a service business that isn’t selling products. Most retail businesses are doing well to net 3-5%.
That said, usually, a repayment structure is principal and interest, or interest-only for a time.
Depending on cash-flow, the payments could be principal-only, with interest being accrued, to be repaid later. Lots of creative ways to structure that.
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