Revenue-based financing: How it works, costs, and who qualifies

What is revenue-based financing?

Revenue-based financing (RBF) gives small businesses access to capital they pay back from future revenue. You may also hear it called revenue-based investing or revenue-share financing. Rather than following a fixed payment schedule, the business generally pays a percentage of its weekly or monthly revenue until it reaches an agreed-upon repayment cap, which includes the provider’s fee. Unlike equity financing, RBF lets business owners raise capital without giving up part of their companies.

Software-as-a-service (SaaS) companies have long used revenue-based funding because recurring subscriptions can create steady, predictable income. But this financing option isn’t just for software companies. Ecommerce brands, subscription businesses, agencies, and other companies with consistent sales may also qualify for this type of funding for inventory, marketing, payroll, or other growth expenses.

How revenue-based financing works 

When you apply for revenue-based financing, the provider usually begins by reviewing your company’s sales history and projected revenue. If you qualify, your offer will outline how much funding you can receive, the percentage of revenue you’ll repay, your repayment schedule, and the repayment cap. After you accept, the provider sends the funds and begins collecting payments according to the agreement. 

Because the provider calculates your payments as a percentage of revenue, the amount can fluctuate from month to month. Slower sales lead to a smaller payment, while stronger sales increase the amount due and may help you reach the repayment cap sooner. Some agreements charge a flat fee, so paying faster may not lower your total cost. That differs from paying off business credit card debt early to avoid future interest charges.

Revenue-based financing example

Here’s an illustrative example. Imagine your business receives $100,000 in revenue-based funding. Your agreement calls for monthly payments equal to 5% of revenue and sets a 1.4x repayment cap. 

In this example, you would repay $140,000 in total. That amount comes from the $100,000 you received plus $40,000 in financing charges. 

During a month when your business earns $80,000, you would pay $4,000. If revenue increased to $150,000 the next month, your payment would rise to $7,500. You would continue making payments until you reached the $140,000 repayment cap. 

Revenue-based financing rates and terms 

Rates and terms can vary quite a bit from one RBF offer to another. Before making an offer, providers typically look at your revenue history, growth, and financial projections. If a provider approves your application, pay close attention to two numbers: the percentage of revenue you’ll repay and the repayment cap. One affects your ongoing payments, while the other determines your total cost. 

Here’s a closer look at what you might find in a revenue-based financing offer.

Revenue-based financing alternatives 

Less-than-perfect credit can make it harder to qualify for traditional business financing. But if your business brings in steady revenue, the Revenued Flex Line may offer another option that doesn’t rely as heavily on personal credit scores. Revenued looks more closely at your sales, cash flow, and bank account activity, and uses a soft credit check when you apply. 

The Revenued Flex Line pairs a business card with the option to request cash draws. However, the financing and repayment structure works differently from a traditional business credit card or business line of credit. Revenued collects payments daily and charges a factor rate rather than interest, so it’s important to review the total repayment amount carefully before accepting an offer. Businesses generally need at least one year in operation, $20,000 or more in monthly revenue or deposits, and a dedicated business checking account to qualify. 

Nav is not a lender or a credit bureau. Credit information is provided by third-party sources.

Pros and cons of revenue-based financing

Revenue-based financing can give a growing business more flexibility than some traditional funding options. But that flexibility comes with tradeoffs, especially when it comes to cost and the amount of revenue you’ll give up during repayment. 

Revenue-based financing vs. loans and equity-based financing

Revenue-based financing falls somewhere between a traditional business loan and equity financing. Like a loan, it gives your business capital that you must repay. But your payments generally follow your revenue instead of staying the same each month. And unlike equity financing, RBF lets you keep full ownership of your company. 

A bank or SBA loan may offer a more affordable borrowing solution if your business can qualify and comfortably handle regular payments. Equity financing removes the pressure of repayment, but it also means giving investors part of your company. RBF may make more sense when you have reliable revenue, want payments that adjust with sales, and don’t want to give up ownership.

How to qualify for revenue-based financing

Revenue matters most when you apply for revenue-based financing. Providers want to see that your business earns enough consistent income to manage payments, even when sales slow down. Minimum requirements vary, but some providers look for at least $15,000 in monthly recurring revenue (MRR). Other providers may have stricter requirements. 

You may also have a better chance of qualifying if your business has:

• Steady or growing revenue
• Recurring subscriptions, contracts, or repeat customers
• Enough time in business to meet the provider’s requirements
• A dedicated business checking account
• Healthy cash flow and bank account activity
• Revenue from several customers rather than one major account 

What types of businesses qualify for revenue-based financing? 

RBF often works well for SaaS and subscription companies because they bring in predictable, recurring revenue. E-commerce brands, agencies, and other companies with consistent sales may also qualify. Still, every provider sets its own requirements and decides which industries it will fund.

How to get revenue-based financing 

Revenue-based financing comes from specialized providers, so you may not have as many choices as you would with traditional business loans. Still, comparing several offers can help you find the best fit for your business and avoid paying more than necessary.

1. Decide how much you need. Choose a funding amount that supports your plans without taking too much revenue away from your business each month. 

2. Review the provider’s requirements. Check the minimum revenue, time-in-business, industry, and other qualification rules before you apply. 

3. Gather your financial records. You may need business bank statements, revenue reports, tax returns, financial projections, and details about how you plan to use the money.

4. Compare several offers. Don’t just look at the funding amount. The revenue percentage, repayment cap, payment frequency, estimated payoff time, and total repayment amount all play important roles in your decision.

5. Read the agreements carefully. Make sure you understand how the provider calculates payments and what happens if your revenue drops before you accept the funding.

Alternatives to revenue-based financing

RBF won’t fit every business. If you don’t meet the requirements or the cost feels too high, compare other funding options before you apply. A few alternatives you may want to consider include:

• Traditional business loans
• Cash flow loans
• Merchant cash advances
• Invoice financing or factoring

Frequently asked questions