DEMAND DIVIDEND

Very similar to PPLs or Revenue-Based Financing in structure is the Demand Dividend. It is a cash-flow-based convertible debt vehicle designed to improve the repayment cycle for investors and ease capital access. The demand dividend requires a company to make periodic payments to investors based on a percentage of its available cash flow, usually until the investors achieve a predetermined return (total obligation). Unlike PPLs, repayment is not calculated as a percentage of revenue or EBITDA; instead, it is based on the company’s free cash flow. Repayment typically begins after an initial “holiday” or “honeymoon” period. Similar to PPLs, demand dividends often include a conversion clause that allows investors to convert the outstanding amount into equity shares later on (refer to profit participation loans for more information).