Revenue Based Financing Agreement Template for Hong Kong

A Revenue Based Financing Agreement offers your Hong Kong business an alternative to traditional debt or equity financing by providing capital in exchange for a percentage of future revenues. This financing structure allows you to access growth capital without diluting ownership or taking on fixed debt obligations, making it particularly attractive for businesses with predictable revenue streams.

When do you need this document?

You need this agreement when seeking non-dilutive financing for business expansion, working capital, or strategic initiatives. Technology startups often use revenue-based financing to fund customer acquisition or product development without giving up equity. Established businesses with recurring revenue models find this financing useful for inventory purchases, equipment upgrades, or market expansion. SaaS companies, e-commerce businesses, and subscription-based services frequently choose this option when they need capital but want to maintain full ownership. The agreement is also valuable when traditional bank loans are difficult to obtain or when venture capital comes with undesirable terms or control provisions.

Key legal considerations

Your agreement must clearly define "qualifying revenue" to avoid disputes over which income streams count toward repayment calculations. The revenue share percentage and payment calculation methodology require precise drafting to ensure enforceability and prevent misunderstandings. You should include comprehensive reporting requirements that specify the frequency and format of financial disclosures to investors. Default provisions need careful consideration, as they determine what constitutes a breach and available remedies. The agreement should address scenarios like revenue decline, business restructuring, or changes in accounting methods. Personal guarantees from directors may be required, creating additional liability considerations. You must also consider the tax implications of revenue-sharing payments and ensure proper classification for accounting purposes.

Legal requirements in Hong Kong

Under Hong Kong law, your Revenue Based Financing Agreement must comply with the Money Lenders Ordinance if the arrangement is deemed a loan, which may require licensing. The Securities and Futures Ordinance applies if the agreement creates investment products or securities, potentially triggering additional regulatory requirements. Contract formation must follow Hong Kong common law principles, ensuring proper offer, acceptance, and consideration. The Companies Ordinance governs corporate aspects, including director duties and disclosure requirements for material financing arrangements. You must comply with the Personal Data Privacy Ordinance when collecting and processing financial information. The Inland Revenue Ordinance affects how revenue-sharing payments are treated for tax purposes, influencing the structure and documentation. Anti-money laundering regulations may require enhanced due diligence procedures, particularly for international investors or complex corporate structures.