A revenue-based loan (also called revenue-based financing or RBF) is a type of funding where a business borrows money and repays it as a percentage of its future revenue. Unlike traditional loans with fixed monthly repayments, repayments for revenue-based loans fluctuate based on the business’s actual revenue performance, making them particularly suited for businesses with variable income.
What Are Revenue-Based Loans?
There are two primary types of revenue-based loans:
Flat Percentage Revenue Share Loans: Businesses repay a fixed percentage of their revenue (e.g., 10% or 15%) until the loan, plus a fixed fee, is fully repaid. The repayment period depends on the business’s revenue performance.
Minimum Commitment Revenue-Based Loans: Along with revenue-based repayments, businesses must commit to a minimum monthly repayment, ensuring the lender recoups a baseline amount even during slower periods.
Advantages of Revenue-Based Loans
Flexible Repayments – Payments adjust based on revenue, making it easier for businesses to manage cash flow during slow periods.
No Fixed Collateral Required – These loans typically don’t require physical assets as security, reducing risk for the borrower.
Fast Approval and Access – Revenue-based loans often have a quick approval process, making them ideal for businesses needing rapid funding.
Business Profile: An online retailer specialising in sustainable and eco-friendly products, looking to grow its operations.
Revenue-Based Loan Need: Business A needs funding to expand its marketing efforts and increase stock levels to meet growing customer demand.
Loan Details:
Loan Amount: £50,000
Repayment: 10% of monthly revenue
Total Repayment: £70,000 (loan amount plus fixed fee)
Scenario:
Business A receives £50,000 upfront to invest in social media ads and bulk-purchase stock.
Monthly repayments vary depending on sales performance with higher repayments in strong months, lower in slower months.
The loan is repaid within 14 months, with an estimated £50,000 in monthly revenue required to meet repayment on schedule.
Business B: Seasonal Tourism Business
(illustration purposes only)
Business Profile: A company offering guided hiking and adventure tours, with seasonal peaks in spring and summer.
Revenue-Based Loan Need: Business B needs £30,000 to purchase new equipment and hire additional guides for the upcoming peak season.
Loan Details:
Loan Amount: £30,000
Repayment: 12% of monthly revenue
Total Repayment: £42,000 (loan amount plus fixed fee)
Scenario:
Business B uses the £30,000 to prepare for the busy season, acquiring equipment and staffing up.
During spring and summer, the business generates high revenue, repaying larger amounts during these months.
In the off-season, when revenue drops, repayments are smaller, ensuring manageable cash flow.
The loan is fully repaid after 10 months, with an estimated £35,000 in monthly revenue required to stay on track.
Why Use a Revenue-Based Loan for Your Business?
Revenue-based loans (RBLs) provide a unique and flexible funding option for businesses with steady or variable revenue. They are particularly appealing for businesses looking to grow without taking on traditional debt or giving up equity. Here’s why they can be beneficial:
Revenue-Based Financing with a Subscription Model (for SaaS or Recurring Revenue Businesses)
Short-Term Revenue-Based Loan
Long-Term Revenue-Based Loan
Invoice Financing with Revenue-Based Repayment
Profit-Sharing Revenue-Based Loan
Royalty Financing (Revenue Share Loan)
Business Loans
What is a Revenue-Based Loan?
A Revenue-Based Loan is a financing option where businesses receive upfront capital and repay the loan as a percentage of their monthly revenue, allowing flexible payments based on income.
How does a Revenue-Based Loan work?
The lender provides funding, and the business repays the loan with a fixed percentage of its monthly revenue until the total loan amount plus fees is repaid. Payments adjust with fluctuations in revenue.
How can a Revenue-Based Loan help my business?
It provides flexible funding for expenses like marketing, hiring, or stock without the burden of fixed monthly payments, aligning repayment with cash flow.
What are the requirements to qualify for a Revenue-Based Loan?
Lenders typically require consistent revenue streams, business financial statements, a minimum revenue threshold, and sometimes a minimum operational history (e.g., 6 months to a year).
How much can I borrow with a Revenue-Based Loan?
The loan amount is usually based on your monthly or annual revenue, typically ranging from £5,000 to £2 million or more.
What is the interest rate for a Revenue-Based Loan?
Revenue-Based Loans don’t use traditional interest rates. Instead, they charge a fixed fee or a factor rate (e.g., 1.2 to 1.5), which determines the total repayment amount.
Can I use a Revenue-Based Loan to consolidate my debts?
These loans are generally intended for business growth or operational needs, not debt consolidation.
Can I get a Revenue-Based Loan if I am a start-up business?
Start-ups may qualify if they have consistent revenue streams, but businesses with a proven revenue history are more likely to secure funding.
How long is the repayment period for a Revenue-Based Loan?
Repayment periods vary but are often between 6 and 24 months, depending on revenue and loan terms.
Can I get a Revenue-Based Loan if I have bad credit?
Yes, bad credit is often not a barrier for Revenue-Based Loans, as lenders focus on your revenue rather than your credit rating.
How quickly can I get approved and receive the funds?
Approval and funding are usually fast, often within a few days after submitting the required documents.
Can I use a Revenue-Based Loan for any business expenses?
Yes, these loans are flexible and can be used for various purposes, such as marketing, hiring, purchasing stock, or expansion.
What documents do I need to apply for a Revenue-Based Loan?
Typically, you’ll need bank statements, proof of revenue (e.g., sales reports), tax returns, and basic business information.
Are there any fees or charges associated with a Revenue-Based Loan?
Fees may include a fixed repayment fee, origination fees, or administrative charges. It’s essential to review the loan terms carefully to understand the total repayment cost.
Can I get a Revenue-Based Loan if my business has irregular cash flow?
Yes, these loans are designed for businesses with fluctuating income, as repayments are based on a percentage of revenue rather than fixed amounts.
Can I use a Revenue-Based Loan to expand my business?
Yes, the funds can be used for expansion projects, such as opening new locations, launching marketing campaigns, or upgrading equipment.
How do I choose a reputable lender for a Revenue-Based Loan?
Research lenders with transparent terms, competitive rates, and positive reviews. Compare repayment terms to ensure they fit your business’s revenue cycle.
What happens if my revenue drops and I cannot make payments?
Since repayments are tied to revenue, lower income results in smaller payments. If revenue drops significantly, contact the lender to explore alternative arrangements.
Are there alternative financing options to a Revenue-Based Loan?
Yes, alternatives include merchant cash advances, term loans, business lines of credit, and invoice financing.
Can I use a Revenue-Based Loan to purchase inventory or pay staff?
Yes, Revenue-Based Loans are flexible and can be used for various operational needs, including stock purchases, payroll, or other business expenses.
