Revenue-based Finance

Revenue-based finance allows a company to use existing revenue to finance a loan. Company pays a fixed percentage of ongoing revenues with payment increases and decreases based on business revenues. Payments continue until the initial amount, plus a multiple (also known as a cap) is repaid.

Great for —

  • Companies with high gross margins and predictable recurring revenue that can support the additional cost in revenue. 

  • Operators that are looking for payments to scale up and down based on the growth of the business without minimum payment requirements.

  • Accessing capital while retaining ownership and control of the businesses. These lenders do not ask for equity or warrants for compensation of the loan. 

Things to Watch Out For —

  • This type of funding can become expensive if the company is growing at a high rate. Paying a fixed percentage of revenue in a rapidly growing company can translate to higher returns than other debt products. 

  • Company immediately starts paying back the loan and does not have an interest only period.

  • The fixed percentage or revenue continues even when revenue is dropping. It is important for the business to have revenue that is predictable to avoid having payments become a blocker to growth.

 

Typical Terms

Funding Size
$5,000 - $5,000,000
Repayment Cap
1.2x - 3x Loan Amount
% of Monthly Revenue Share
1 - 10%
Loan Term
2 - 8 Years
Minimum Required Monthly Revenue
$10,000
Upfront Fees
1-2% Loan Amount

 

Glossary

Repayment Cap
The loan is terminated once the borrower repays the Initial funding amount plus a multiple (known as a repayment cap). This is agreed upon by borrower and lender at the beginning of the loan.