Revenue-based funding is business funding sized on what your business actually brings in, not on property, collateral or a long credit file. The amount is set against your monthly deposits, and repayment comes out of revenue on a daily or weekly schedule. It is what most owners mean when they search for revenue based loans, although strictly speaking much of it is not a loan at all.
Two things go by the same name
"Revenue based financing" means different things depending on who is using it, and the difference matters before you compare offers:
- Main-street revenue-based funding. Working capital or a merchant cash advance sized on bank deposits, with a fixed total payback set by a factor rate and collected by a daily or weekly debit. This is what we review.
- Venture-style revenue-based financing. Used mostly by subscription and software companies: a percentage of each month's revenue until a capped multiple is repaid. It is built for recurring-revenue businesses and is a different product.
If you run a restaurant, a contracting firm, a shop or a service business, the first kind is the one that fits.
When it fits
- Deposits are steady or growing, and the need is short-term: stock, a slow month, a repair, a contract that pays later.
- A bank wants collateral, two years of tax returns or months of process you do not have time for.
- Your credit is fair rather than excellent, but the bank statements are clean.
- The money will earn back its cost within months, not years.
When it does not
It is a poor fit for long-life assets and slow projects. Paying for a building or a five-year plan with funding that is repaid over months strains cash flow for no reason; an SBA or term loan or equipment financing usually suits those better. It also does not fix a business whose deposits are falling or whose margins cannot carry a daily payment. If the money would only cover a loss that will repeat next month, we will say so.
How it works
1. A short application. Business details, the amount you need and what it is for. Checking options uses a soft credit pull only.
2. Four months of bank statements. Deposits are the core of the file. Our guide to what underwriters read in bank statements covers what stands out.
3. An offer in plain numbers. The amount, the total payback, the payment and how often it is taken, and the expected term.
4. Funding and repayment. Funds land in the business account, and payments run from the same account until the payback is complete.
What we look at
Average monthly deposits and how consistent they are, the number of deposits each month, ending balances, overdrafts or returned items, existing funding payments, and time in business. Credit is checked but rarely decides the file on its own. Our page on revenue requirements explains how deposits relate to the amount offered.
A worked example
A business banking $80,000 a month wants $40,000 to take a supplier's bulk discount. Suppose, purely as an illustration, the offer carries a total payback of $50,000 over six months. That is roughly $1,900 a week, or about 10% of weekly deposits. The decision then comes down to two dollar figures: the $10,000 the funding costs, and what the bulk buy saves or earns. If the buy is worth more than $10,000, it pays for itself. If not, it does not. The MCA calculator lets you run your own numbers.
Revenue-based funding vs a bank term loan
A term loan is usually cheaper and runs longer, but it asks for more: collateral, stronger credit, tax returns and time. Revenue-based funding costs more per dollar and is repaid faster, but it is decided mostly on deposits and can arrive in days. Many owners use both: a term loan for the long project and revenue-based funding for the short, time-sensitive need. Compare total cost in dollars, not just the payment. Our guide to what funding costs shows how.
Read next: Working capital · Merchant cash advance · What is a factor rate?
Checking what revenue-based funding your business qualifies for takes about 60 seconds, uses a soft credit pull only, and costs nothing. There are no broker fees. Start an application or request a callback to talk it through.
Common questions
Is revenue-based funding a loan?
Not always. Some revenue-based working capital is a loan, but a merchant cash advance is a purchase of future receivables rather than a loan, which is why it is priced with a factor rate instead of an interest rate. Either way, the offer should show the amount, the total payback and the payment before you sign.
Can I get revenue-based funding with bad credit?
Often, yes. Deposits and how the account is managed matter more than the score, so a fair credit file with clean statements can still qualify. Very recent defaults, tax liens or a pattern of returned payments make it harder.
How fast does revenue-based funding arrive?
Once the statements are in and an offer is accepted, funding commonly lands within one to two business days. The usual delay is missing paperwork, so having four months of statements ready helps.