What is Revenue-Based Financing?

Revenue-based financing is an alternative funding model where lenders provide capital to a business in exchange for a percentage of the company's ongoing revenues. Revenue-based financing provides an alternative to traditional debt or equity financing, offering flexibility and alignment with a company's growth trajectory.

It's particularly appealing for companies that may not qualify for bank loans and asset based lending options will not provide adequate growth capital, and they want to avoid equity dilution.

Lenders provide the loan/capital typically up to 25% to 50% of the company’s annual revenue depending on the expected term of the loan. The business repays the loan typically by paying a percentage of its monthly revenue rather than a fixed payment amount. Repayment continues until a predetermined total amount is repaid (typically 1.3x to 2x the original investment)

Key Characteristics

• Non-dilutive: Does not require giving up equity or ownership

• Flexible repayment: Payment amounts adjust with revenue fluctuations

• No fixed term: Repayment period varies based on revenue performance

• No collateral required: Unsecured funding based on revenue potential

• Faster than equity funding: Simpler process without valuation negotiations

Advantages

• Retains full ownership and control for founders

• Aligns investor and company interests around revenue growth

• More accessible than bank loans for early-stage companies

• Provides capital without fixed monthly payments

• Often, no personal guarantees are required

Best Suited For

• Companies with strong gross margins and a track record of growth

• Businesses with predictable, recurring revenue