Many entrepreneurs having trouble growing their operations and getting ahead of their competitors need some cash, but today's economy is making it increasingly difficult to come across funding opportunities. A small boost of cash flow can go a long way for a firm owner who wants to take his or her enterprise to the next level.

With this in mind, entrepreneurs may ask themselves, "How do I get my hands on some cash?" One source of potential cash flow worth investigating is revenue-based financing: loans provided to business owners in exchange for a fixed percentage of gross monthly revenue.

"I only needed a small injection of money to get the ball rolling, without the fear of heavy payment terms," Jamie Kent, founder of YogaDownload, told Entrepreneur magazine. After searching "small-business financing" on the internet, she learned about RBF. "It seemed like a perfect way to cash-strap my company."

RBF can be especially attractive to entrepreneurs who don't want to put up collateral or forfeit an ownership stake in their companies. Another benefit of the funding opportunity is that if the company takes a step back, they won't have to pay a high fixed amount each month. However, delinquent payments could lead to an entrepreneur losing his or her business completely to the investors that provided the loan.

"Our value proposition is that there's no equity dilution, no loss of control," Andy Sack, founder of Lighter Capital, a Seattle-based company specializing in RBF, told the magazine. "But compared to banks, we provide more capital to succeed."

What are risks of RBF?
While RBF certainly sounds like a great way for entrepreneurs to get their hands on some capital, it may not be the safest possible way small business owners can accumulate funding. There are a few risks associated with RBF for entrepreneurs who are willing to try out the lending opportunity.

•High interest rates: Investors will sink their funds into a company they believe is ready to experience major growth, normally expecting the loans to get paid off in four to five years. For example, if an entrepreneur were to secure a $100,000 loan, it would most likely cost him or her $150,000 to $200,000 over the life of the loan. This is expensive money for small business owners just getting their first taste in running their own firms.

•Potential to lose a business: Entrepreneurs must do the necessary financial forecasting before they seek out RBF. If entrepreneurs predict their businesses will grow dramatically in the next few years, RBF may be right for them. However, if they are unsure about their expected revenues, it may not be the best idea.

"A company at any stage can benefit from this type of financing," Sack told the magazine. "The main thing holding it back is market education."

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