Between banks and venture capital, some start-ups look to a pay-as-you-go model "We get five times the orders coming in, and our cash flow is low because we're coming off our lowest selling point, which is winter," owner Laura Howard-Gayeton said. Last year, we realized we really needed a line of credit to draw on. To fill the need, Laloo's turned to Lighter Capital, a firm that provides a type of start-up funding known as revenue-based financing. The arrangement falls somewhere between traditional bank loans and venture capital: A firm invests a few hundred-thousand or million dollars into a start-up, and the start-up pays it back from its monthly earnings rather than through an IPO or exit. Howard-Gayeton said that her bank viewed Laloo's as too much of a risk and that she didn't have time to wait for a Small Business Administration loan to process. "While it's not the cheapest money we could ever borrow," she said, "for us, Lighter Capital was the most nimble, pain-free experience." Lighter is one of about a hundred groups in the recently formed Revenue Capital Association. These firms tend to invest in businesses that venture capitalists and angels pass up, and that don't qualify for - or don't want - a bank loan. Jeff Schrock, the managing director of Seattle's Union Bay Capital and a board member of the association, said the difference between his organization and a venture capital firm is, roughly, that the latter invests in a company or team, while a revenue-based firm invests in a product. "If you have a great product that has attractive unit-level economics, it works," he said. We are trying to grow businesses that are overlooked by capital markets - the hundreds of other gazelles in the herd that are fantastic businesses. There are a lot more of those than there are Googles and LinkedIns. Between bank loans, equity Gavino Morin, a founder of Hellfire Games in Austin, got a green light from Sony in 2010 to develop a new game and needed a fast, large influx of cash to hire programmers. He was hesitant to pursue a bank loan with fixed payments, however, because video game revenue can fluctuate. Instead, he went with Next Step Capital Partners, an Austin revenue-based financing firm. Like other entrepreneurs, Morin was attracted to the system because a revenue-based firm wouldn't ask him to give away shares of his company. "This way, we don't give up equity in the company," he said, "and when it's based on revenue, you build a lot more flexibility into your payment system." In general, businesses backed by the arrangement pay a pre-determined percentage of their revenue - 3 to 5 percent, for example - to the investor until the entire principal is repaid, plus a return. The returns vary but are almost always higher than those of a typical bank loan: Lighter Capital, which makes investments of $100 to $250,000, said its return is usually 18 to 20 percent, but Schrock said he has seen returns of up to four times the original investment.