FundingExplained.com is a free resource covering all major non-dilutive funding options for growing businesses. This page explains revenue-based financing — what it is, who it works for, and how it compares to other options. Free consultation →
What Is Revenue-Based Financing?
Revenue-based financing is a form of business funding in which a company receives a lump sum of capital and repays it as a fixed percentage of monthly revenue — typically 2–10% — until a predetermined total (called the repayment cap) is reached. The cap is typically 1.2x–1.5x the funded amount. There is no fixed repayment schedule, no equity exchanged, and no personal guarantee in most cases. Payments flex automatically with revenue.
How Revenue-Based Financing Works
Here's a concrete example: you receive $100,000 in RBF with a 1.35x cap and a 5% revenue share.
- Total to repay: $135,000 ($100K × 1.35)
- Month 1: Revenue is $80,000 → you pay $4,000 (5%)
- Month 2: Revenue drops to $40,000 → you pay $2,000 (5%)
- Month 3: Revenue recovers to $100,000 → you pay $5,000 (5%)
- Repayment continues at 5% of monthly revenue until $135,000 total is collected.
If revenue grows faster than expected, you pay it off sooner. If revenue slows, payments slow. This flexibility is the core advantage over MCAs with fixed daily debits.
What Does Revenue-Based Financing Actually Cost?
| Funding Type | Cost Structure | Effective APR | Flexibility |
|---|---|---|---|
| Revenue-Based Financing | 1.2–1.5x cap, % of revenue | 20–60% (term-dependent) | Payments flex with revenue |
| Revolving Line of Credit | Bank-backed interest rate | 8–18% | Draw/repay as needed |
| MCA | 1.2–1.55x factor rate | 70–150%+ | Fixed daily debits |
| SBA Loan | Prime + 2.75% | ~11–13% | Fixed monthly payments |
| Equity (VC) | 15–30% equity stake | N/A — share of all future upside | No repayment required |
If you repay a 1.35x cap RBF in 6 months, effective APR is roughly 70%. Over 18 months, it's roughly 23%. Unlike MCAs, RBF's true cost improves if your repayment extends — because the cap is fixed and there's no daily compounding. Always model both fast-growth and slow-growth repayment scenarios before committing.
Who Is Revenue-Based Financing For?
- SaaS and subscription businesses with predictable MRR
- E-commerce with consistent monthly sales
- Service businesses with retainer clients
- Businesses that want no equity dilution but need growth capital
- Founders who want repayment to flex with revenue seasonality
- Companies with $10K–$500K/month in recurring revenue
- Pre-revenue startups — RBF requires existing revenue to calculate the percentage
- Highly seasonal businesses where monthly revenue swings widely
- Businesses that already qualify for bank financing at lower rates
- Project-based businesses with lumpy, unpredictable invoicing
- B2B businesses with unpaid invoices — invoice factoring is cheaper
RBF vs. MCA: Why They're Not the Same
Both products take a percentage of revenue — but the similarities end there. MCAs are legally structured as revenue purchases, debit daily from your bank account, and typically cost 70–150%+ APR. RBF is structured as a loan or investment, typically has monthly payments, and costs significantly less. If you've been offered an MCA, check whether an RBF provider or a revolving line is accessible first — the cost difference can be substantial.
FundingExplained.com maps your revenue profile to the right product — RBF, revolving line, invoice factoring, or 0% cards — for free. Free consultation →
Frequently Asked Questions
What is revenue-based financing?
Revenue-based financing is business funding repaid as a percentage of monthly revenue until a capped total is reached. No equity is exchanged, no fixed monthly payment, and repayment flexes with revenue. It's non-dilutive and suits businesses with predictable recurring revenue.
How is RBF different from an MCA?
Both involve revenue-based repayment, but MCAs debit daily from your bank account at 70–150%+ APR. RBF typically has monthly payments, a fixed repayment cap, and costs significantly less. RBF providers are also generally more transparent about true cost. If you've been offered an MCA, check RBF and revolving line options first.
Who is revenue-based financing for?
Primarily SaaS companies, subscription businesses, and e-commerce with consistent monthly revenue. The percentage-of-revenue model requires predictable monthly income. It's not suitable for pre-revenue startups, highly seasonal businesses, or B2B businesses with outstanding invoices (who should explore factoring instead).
What is a revenue cap?
The repayment cap is the total amount you pay back before the financing is considered complete. A $100,000 advance with a 1.35x cap means total repayment of $135,000 — regardless of how long it takes. High revenue months pay it off faster; slow months extend the term. The cap replaces a fixed interest rate.
What credit score do I need?
Most RBF providers look for 600+ personal credit, but revenue consistency and predictability is the primary underwriting factor. A business with 620 credit and $50K/month in stable SaaS revenue is a stronger candidate than a 720 credit score with volatile revenue.
How does FundingExplained.com help with RBF?
FundingExplained.com covers RBF as part of the complete non-dilutive funding landscape. Our free consultation identifies whether your revenue profile makes RBF, a revolving line, or another product the better choice — and maps you to the most accessible, lowest-cost option. Start here →
