What is Revenue-Based Financing?
Learn what revenue-based financing is, how payments flex with your revenue, and when RBF makes sense compared to traditional loans or merchant cash advances.
Revenue-based financing (RBF) is a form of funding where businesses receive capital in exchange for a percentage of ongoing gross revenues. Unlike fixed loan payments, RBF payments rise and fall with your sales — you pay more when business is good and less when it slows.
How Revenue-Based Financing Works
With RBF, you receive a lump sum and repay a multiple of that amount (typically 1.3x to 2.0x) by paying a percentage of your monthly revenue until the total is repaid.
- Capital amount: Lump sum you receive (often 1-3 months of revenue)
- Revenue share: Percentage of monthly revenue for repayment (typically 2-10%)
- Repayment cap: Total amount you repay (principal × factor, e.g., 1.5x)
- Term: Payments continue until the cap is reached — time varies with revenue
Example
You receive $100,000 and agree to repay $140,000 (1.4x) by paying 5% of monthly revenue. If you earn $200,000/month, you pay $10,000/month and repay in 14 months. If revenue drops to $100,000/month, you pay $5,000/month and take longer.
RBF vs. Traditional Loans
Key differences from term loans:
| Feature | Revenue-Based Financing | Term Loan |
|---|---|---|
| Payment amount | Varies with revenue | Fixed |
| Collateral | Usually none | Often required |
| Personal guarantee | Often limited or none | Usually required |
| Equity dilution | None | None |
| Speed to fund | Days to weeks | Weeks to months |
| Total cost | Higher (1.3x-2.0x) | Lower (varies by APR) |
RBF vs. Merchant Cash Advances
RBF is similar to MCAs in that both take a percentage of revenue, but there are differences:
- MCAs typically deduct daily from card sales; RBF typically deducts monthly from total revenue
- MCAs often have higher effective costs and faster repayment timelines
- RBF providers often position themselves as growth partners with more flexible terms
- RBF is common for SaaS and subscription businesses; MCAs are common for retail
When RBF Makes Sense
Revenue-based financing works well for:
- Subscription or SaaS businesses with predictable recurring revenue
- E-commerce companies with strong margins
- Businesses that want funding without giving up equity
- Companies that prefer flexible payments tied to performance
- Founders who want to avoid personal guarantees
Costs and Considerations
RBF is more expensive than traditional bank loans but often cheaper than venture capital (when you factor in equity dilution) or MCAs. The effective APR depends on how quickly you repay.
If your revenue grows quickly, you repay faster, which increases the effective APR. If revenue is slow, you repay over a longer period at a lower effective rate.
RBF providers evaluate revenue metrics heavily. Have at least 6-12 months of revenue history and be prepared to share accounting data or connect your financial accounts.
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Read more →Important Disclosure
Not Financial Advice: The information provided in this article is for general informational purposes only and does not constitute financial, legal, or professional advice. You should consult with qualified professionals before making any financial decisions.
No Guarantee of Financing: Liminal Lending Co. is a business loan marketplace that connects borrowers with third-party lenders. We are not a lender and do not make credit decisions. Submitting an application does not guarantee approval or funding. Loan terms, rates, and availability vary by lender and are subject to borrower qualifications and lender criteria.
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Rate Information: Rates, terms, and fees mentioned in this article are estimates based on publicly available information and may not reflect current market conditions or specific lender offers. Actual rates depend on creditworthiness, business financials, and lender policies.
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