# Critical Assumptions and Non-Negotiables A royalty lending book works only if forecasts hold across the pool and the funder controls the cash. ## Critical assumptions (what can break) - Forecast revenue tracks actual revenue across the pool. One deal can miss. The pool cannot. - DSP per-stream payouts stay stable. A rate cut hits every deal at once. - Streams are real. Fake streams cause take-downs and clawbacks. - Rights are clean. No prior lien, no label or co-writer claim, splits on paper. - Collection holds. The distributor honours the redirect. The artist cannot switch distributor and take the cash. - Lenders accept music royalties as an asset class. This is now largely true. - Platform rules stay stable. Since Apr 2024 Spotify pays nothing for tracks under 1,000 streams a year, and it fines fake streams.^[Royalty Financing Primer, citing MBW, Apr 2024] - Deal costs scale down. Fixed costs swamp a £1k advance, so small deals do not pay unless the process is automated. - Masters only. Publishing income flows elsewhere, so it is outside the collateral. ## Non-negotiables 1. **Cash control.** Letter of direction or tri-party agreement with the distributor, or ownership of the asset. No credit fund lends without it. - Future Mode is the distributor, so it already deducts fee and recoupment before payout. - A lender to Future Mode still wants a controlled collection account. This protects the lender from Future Mode's own credit risk. 2. **A back-tested underwriting model.** Show forecast against actual on real history. 3. **Legal structure.** Pick revenue purchase, loan or catalog purchase early. - UK lending to individuals and sole traders below set limits can fall under FCA consumer credit rules. - A true-sale revenue purchase may sit outside them. - UK counsel must confirm. Do not assume. 4. **First-loss equity.** Warehouse lenders advance only part of the pool value. Sponsor capital takes the first losses. 5. **Servicing and reporting.** Track collections per deal per month. Lenders ask for this data before they commit. > [!note] Unsourced > Advance rates and first-loss size are general industry norms. They are not from the competitor sources. ---- tags: #boat links: [[Music Royalty Financing MOC]] [[Royalty Financing Is Specialty Finance]] [[Ten West Future Mode - Test Plan]]