Additional Points to Consider
When considering a royalty funding agreement, it is important that there be a limit on the amount of money that can be repaid to the lender; you do not want to pay some percentage in perpetuity, like the NBA does.
Additionally, royalty deals are not good for businesses that have tight profit margins. The reason, of course, is that your repayments come out of your profits. As such, if profits are squeaked out in your business, adding an additional layer of overhead to your already thin margins can tip the balance in the wrong direction. Be careful of that.
Finally, you want to be sure that the pricing on whatever product you choose to sell against is elastic enough that you can still make money on it, despite the royalty payment. You don't want the royalty deal to turn that product into a loss leader.
Bottom Line: Revenue sharing and royalty agreements can be a great source of income for your business as long as you can afford to share your profits down the road.
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