What is a Revenue Based Financing Agreement Review?
Revenue based financing is an arrangement in which a company receives capital upfront from an investor, in exchange for a percentage of future revenue. It remains in effect until an agreed-on amount is paid back to the investor.
In a revenue based financing agreement, all the terms of the arrangement must be specified so that parties have clarity.
If you need to review this agreement, you might wonder where to start. Read the rest of this article for key contract terms to explore, how to review the agreement thoroughly, and why you’ll benefit from hiring a qualified lawyer to help you with the contract review process.
What are Key Terms in a Revenue Based Financing Agreement?
A revenue based financing agreement usually contains the following core information.
- Advance amount. Check that the advance money from the investor is clearly stated.
- Repayment cap. This must be an accurate amount for the total return owed to the investor.
- Revenue share. Verify the percentage of revenue that is paid to the funder or investor. Make sure it is aligned with the repayment cap.
- Target timeline. Check the timeframe in which to reach the cap is clear.
- Payment schedule. You want clarity on how frequently the investor will be paid and what payment methods and dates apply.
- Reconciliation rules. The payments might be adjusted depending on business sales, so check this section to prevent misunderstandings.
What are Tips for Reviewing a Revenue Based Financing Agreement?
When reviewing a revenue based financing agreement, you should consider some important things to prevent pitfalls and protect your interests.
Check all Financial Data
Start your review by checking all the numbers, such as the funding amount, the revenue-share percentage, the repayment cap, and any fees or charges so that nothing is unclear.
Consider the Repayments
You want to ensure that the agreement provides comprehensive repayment terms, such as regarding what minimum monthly payments are made and what happens if the company has a bad month that could potentially affect payments. Understanding this now will protect your interests in future.
Check Defaults and Remedies
The agreement should specify what constitutes a default, such as missed payments or a breach of terms. Make sure it also clarifies how defaults are treated, such as what the investor can do. Examples could include applying increased charges or contract termination.
Verify all Covenants
Covenants specify what the business can and must do, as well as what activities aren’t permitted, to maintain performance levels. Check for important covenants, such as revenue reporting, tax compliance, and not taking on additional debt.
Should You Hire a Lawyer for a Revenue Based Financing Agreement Review?
Hiring a qualified lawyer to review your revenue based financing agreement is worthwhile, especially if the funding is significant or you’re worried about any confusing terms in the contract.
A lawyer can help you by:
- Explaining all the financial data in the agreement, checking that it’s accurate and fair.
- Identifying hidden risks and obligations, such as regarding minimum payments or additional fees.
- Assessing all default provisions so that there’s clarity over what constitutes a default and how it can be handled fairly.
- Negotiating with the other party, such as for liability and indemnities, to protect you against risks. They’ll put new terms in the final agreement to prevent the risk of relying on verbal promises.
- Checking for any restrictions on the business, such as regarding covenants in the agreement.
- Flagging any vague language that can result in misinterpretations and disputes. They’ll replace it with clear, specific terms that are easy for both parties to understand.
- Considering what legal requirements affect the agreement so that everything in the contract is legally sound.
- Considering your specific arrangement and tailoring the agreement to it. This provides a more thorough agreement than if you rely on a generic online contract template.
Where to Hire a Lawyer to Review Your Revenue Based Financing Agreement
If you need to find a reputable, experienced lawyer to review your revenue based financing agreement, you don’t have to ask people for lawyer recommendations or call traditional law firms in your area. By using an online legal platform such as ContractsCounsel, you’ll quickly connect with lawyers from the comfort of your home.
ContractsCounsel is one of the largest online legal marketplaces that gives you access to a curated network of lawyers who have been vetted on the platform. All lawyers have contract drafting and review experience, so they’ll provide an in-depth review of your revenue based financing agreement.
To start the process of hiring a lawyer to review your agreement, here are the easy steps to follow:
- Go to the ContractsCounsel marketplace, where it’s free to post your project.
- Select ‘One-time project’ and ‘Contract review.’
- Post your project, including a few details of what you require to help you match with suitable lawyers. You could include specific contract provisions you’d like reviewed.
- Wait for bids. Lawyers on the platform will send you bids to work on your project, so you don’t have to find a lawyer.
- Review the lawyers’ data. Before selecting a lawyer to review your contract, go through the lawyers’ information, which includes their location, expertise, years of experience, and client ratings for previous projects completed on the platform.
- Choose a lawyer and hire them to review your revenue based financing agreement for a flat fee. This will give you peace of mind that all the agreement terms are clear and legally sound to protect both parties.