December 14, 2021

Income Share Agreements For Entrepreneurs – The Future of Funding

School Resources|Income Share Agreements
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Income Share Agreements, or ISAs for short, are a growing alternative to traditional student loans. In the world of new financing approaches, Income Share Agreements are unique.  But many are starting to think of them as a tool to help startup founders and entrepreneurs. 

Don’t know what an ISA is? Here’s a quick overview: usually, with an ISA, your upfront payment for a service like education is deferred. Instead, you agree to pay back a percentage of your income over a set number of months. Think of it like deferred tuition but with added benefits since your repayments are linked to your income.

The percentage and period of time vary depending on ISA. For example, a student may receive tuition upfront for 5% of their income during the 48 months after graduation. ISA terms vary between ISA funders and have many benefits, but this is a basic overview. If you want to learn more about Income Share Agreements, you can check out our Ultimate Guide to ISAs. ISAs are most well-known as a tool for educators and students.

 But how might someone apply the principles of an ISA to funding for a startup?

ISAs for Entrepreneurs

Income share agreements are most commonly used to fund education and career development, but they are gaining potential for founders seeking early capital to start a business. 

With an ISA, the percentage you pay will stay the same even as your income varies. Meaning that your payments are linked directly to your income which ensures payments are always manageable. 

ISAs also include a salary floor, so your payments are paused if you’re earning under a certain amount. This feature is essential for founders who may experience periods with little to no income.

Most ISA’s also include a repayment cap, so once you reach that set total amount, you’re finished with your payments, regardless of whether or not you’ve made all the required payments. This prevents high-income earners from paying back an unfair amount.

This approach is perfect for entrepreneurs because it’s more flexible than equity-based funding options alone. It’s also an inclusive, equitable approach that serves idea and early-stage companies better than other traditional funding options. Since it’s an Income Share Agreement, your funder only wins if you win, so they’re committed to helping you succeed and giving you the tools you need to win. 

Who’s doing this now? 

Chisos is an up-and-coming company that invests in high-potential individuals from all walks of life. Chisos designed a funding model for idea and early-stage entrepreneurs: the Convertible Income Share Agreement. To learn more about their ISA program, visit their program info page.

This concept could be a game-changer for those looking to become entrepreneurs but don’t have the upfront capital to get started. What are your thoughts? 

About the author

This post was prepared by the author, in her/his personal capacity. The views expressed are her/his own, and do not necessarily reflect the views of Meratas Inc.
The information contained in this site is general in nature and should not be considered to be legal, tax, accounting, financial or other professional advice. In all cases, you should consult with professional advisors familiar with your particular situation prior to making any important decisions. Although every effort has been made to provide complete and accurate information, Meratas Inc. makes no warranties, express or implied, or representations as to the accuracy of this content. Meratas Inc. assumes no liability or responsibility for any error or omissions in the information contained herein or the operation or use of these materials. Copyright 2022

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