Traditional loans have a problem: fixed monthly payments.

Whether you have your best month ever or your worst month in years, that $2,500 payment is due. This creates stress, cash flow problems, and sometimes business failure—not because the business isn’t viable, but because the payment structure doesn’t match reality.

Enter revenue-based financing (RBF)—a funding option where your payment adjusts based on your actual sales.

But is it right for your business? Let’s break it down.

What Is Revenue-Based Financing?

Revenue-based financing is a funding model where:

•You receive a lump sum of capital upfront

•You repay a percentage of your daily or weekly revenue

•Your payment goes up when sales are strong

•Your payment goes down when sales are slow

•You repay until you’ve paid back the original amount plus a fixed fee

Think of it like this: Instead of owing $2,000/month regardless of sales, you might owe 10% of daily revenue.

•$500 sales day = $50 payment

•$3,000 sales day = $300 payment

•$50 sales day = $5 payment

Your payment flexes with your business.

How Does It Actually Work?

Example:

•You receive: $50,000

•Factor rate: 1.3 (this is how RBF fees work, not APR)

•Total payback: $65,000 ($50,000 × 1.3)

•Repayment: 10% of daily revenue until $65,000 is paid

Your Daily Payments:

•Monday sales: $1,000 → Payment: $100

•Tuesday sales: $2,500 → Payment: $250

•Wednesday sales: $500 → Payment: $50

•Thursday sales: $3,000 → Payment: $300

•Friday sales: $1,500 → Payment: $150

Weekly total paid: $850

Compare that to a traditional loan where you owe $2,000 regardless of whether you had a $500 week or $5,000 week.

Factor Rate vs. APR (Understanding the Cost)

Revenue-based financing doesn’t use APR—it uses factor rates.

Factor Rate Examples:

•1.2 = You pay back $1.20 for every $1.00 borrowed

•1.3 = You pay back $1.30 for every $1.00 borrowed

•1.4 = You pay back $1.40 for every $1.00 borrowed

What does this mean in real terms?

$50,000 loan at different factor rates:

•Factor rate 1.2 = Pay back $60,000 (cost: $10,000)

•Factor rate 1.3 = Pay back $65,000 (cost: $15,000)

•Factor rate 1.4 = Pay back $70,000 (cost: $20,000)

Is this expensive? Depends on:

•How quickly you pay it back

•What opportunity it creates

•Your alternative options

If you pay back in 6 months, a 1.3 factor rate equals roughly 60-70% APR. If it takes 12 months, it’s more like 30-35% APR equivalent.

Yes, it’s more expensive than a bank loan. But it’s more flexible and easier to qualify for.

Who Qualifies for Revenue-Based Financing?

Typical Requirements:

•6+ months in business (some as low as 3 months)

•$10,000-$15,000+ monthly revenue

•Business bank account

•Consistent sales (they’ll review 3-6 months of bank statements)

•550+ credit score (some lenders are flexible)

What they care about most:

Your revenue consistency. They’re buying a percentage of your future sales, so they want to see steady income.

Who gets approved:

•E-commerce businesses

•Restaurants

•Retail stores

•Service businesses with recurring revenue

•B2B companies with steady contracts

•Seasonal businesses (RBF is perfect for this)

Pros of Revenue-Based Financing

✅ Flexible Payments

Payment adjusts with your cash flow. Slow month? Lower payment. This eliminates the #1 cause of business loan default.

✅ Fast Funding

Most RBF providers fund within 24-72 hours. Traditional bank loans take weeks or months.

✅ Easier Approval

Lower credit requirements. Focus on revenue, not perfect credit history.

✅ No Fixed Term

You’re not locked into 12, 24, or 36 months. You pay it back as your revenue allows.

✅ No Collateral Required

Unsecured funding in most cases. Your home and personal assets aren’t at risk.

✅ Perfect for Seasonal Businesses

If you have high and low seasons, RBF adjusts automatically. No stressing about payments during slow months.

Cons of Revenue-Based Financing

❌ More Expensive Than Banks

Factor rates of 1.2-1.4 mean you’re paying 20-40% in fees. Bank loans are 6-10% APR.

❌ Daily/Weekly Payments

Money comes out of your account frequently. This requires consistent cash flow management.

❌ Can Extend Payback Period

If sales slow down significantly, you could be paying this back for 18-24 months instead of 6-12.

❌ Takes a Cut of Every Sale

That 10% comes out whether you need it or not that day. Can feel restricting.

❌ Not Building Business Credit

Most RBF lenders don’t report to business credit bureaus. You’re not building your credit profile.

When Revenue-Based Financing Makes Sense

✓ You Need Capital Fast

An opportunity you can’t wait 6 weeks for bank approval to seize.

✓ You Have Seasonal or Variable Revenue

Your monthly sales swing wildly. Fixed payments would destroy you.

✓ Your Credit Isn’t Perfect

You’ve been denied by banks but have strong monthly revenue.

✓ You Need Working Capital

Inventory, marketing campaigns, hiring, equipment—things that generate revenue quickly.

✓ The ROI Justifies the Cost

If you can turn $50K into $150K in revenue, a $15K fee is worth it.

When to Avoid Revenue-Based Financing

✗ You Qualify for a Bank Loan

If you can get approved at 8% APR, don’t pay 40% equivalent.

✗ Your Cash Flow Is Already Tight

If that daily payment will stress your operations, this isn’t the move.

✗ You’re Not Sure How You’ll Use It

Never borrow just because you can. Have a specific use and ROI projection.

✗ You Can’t Afford the Total Payback

Do the math. If $65K payback feels impossible, don’t take $50K.

Alternatives to Consider

Before committing to RBF, compare:

Business Line of Credit:

•Similar flexibility

•Only pay interest on what you use

•Lower costs if you qualify

Invoice Factoring:

•If you have B2B clients with net-30/60 terms

•Sell your invoices for immediate cash

•Only works if you invoice clients

Equipment Financing:

•If you need equipment specifically

•Equipment serves as collateral

•Lower rates than RBF

Traditional Term Loan:

•If you can wait and qualify

•Much lower cost

•Fixed predictable payments

How to Apply

Step 1: Gather Documents

•Last 3-6 months business bank statements

•Business tax returns (some lenders)

•Photo ID

•EIN letter

Step 2: Compare Lenders

Popular RBF providers:

•Forward Financing

•Credibly

•Liberis

•Clearco (for e-commerce)

Step 3: Get Multiple Quotes

Each lender will offer different:

•Loan amounts

•Factor rates

•Repayment percentages

•Terms

Step 4: Read the Fine Print

•What’s the total payback amount?

•What percentage of revenue?

•Daily or weekly debits?

•Any penalties for paying off early? (Some have none, which is great)

•Cap on how long repayment can take?

The Bottom Line

Revenue-based financing isn’t “good” or “bad”—it’s a tool.

Use it when:

•You need speed

•Your cash flow is variable

•You have a clear ROI on the capital

•Other options aren’t available

Avoid it when:

•You have cheaper alternatives

•You can’t afford the total payback

•Your cash flow is already strained

The key question: Will this capital generate more revenue than it costs?

If yes, it’s a smart business decision—even if it’s expensive.

If no, keep looking for other solutions.

Need help determining if revenue-based financing fits your situation? Our funding application includes personalized analysis of your revenue, cash flow, and best funding options.

[Start Your Funding Application →] https://expertbusinessadvisors.org/fundability