When you're looking for funding, where do you go first?

Debt and equity-based funding have traditionally been the go-to options for most start-ups, but they aren’t necessarily best-suited for founders that want to avoid making personal guarantees or giving away equity.

Over the past few years, revenue-based finance has quickly become one of the most popular funding options for founders.

What is Revenue-based Finance?

Revenue based finance gives companies capital in exchange for a percentage of their future revenue. 

Advances are approved on the assumption that companies will repay a certain percentage every month. If a company takes out a $500,000 loan, they might agree to pay it back via a profit share of 6% per month, for example.

Higher-revenue months will result in a larger repayment and a shorter repayment term, while lower-revenue months will see a smaller repayment and a longer repayment term.

Revenue based finance lenders will take a look at your business's financial history to determine how much they are willing to lend you. However, unlike other forms of startup funding, you don’t have to present a pitch deck or an intricately detailed business plan - in fact, there’s often very little paperwork involved.

Instead, lenders connect to your back-end systems to make decisions based on your projected revenue. This means that lenders can make funding decisions within days, not months.

How does Revenue-based Finance work? 

There are typically three steps involved in securing revenue-based finance:

1. Sign up with a RBF provider

First of all, you'll sign up with a revenue-based finance provider and connect your business's financial accounts (think Xero, Stripe, etc). This allows the provider to see your business's financial history and make a projection of your future revenue. Based on their prediction, they'll make you some funding offers.

2. Choose an offer

If you're eligible, you'll receive some funding offers. As part of the offer, the provider charges a flat fee and agree s a revenue-share until you've recouped the cost.

3. Repay the advance

Repayments are made based on monthly revenue. If a company sees higher revenue, they'll repay the loan more quickly. However, repayments track with revenue, so if you have a slow month, the repayments slow down too.

How much revenue-based finance can you secure?

Finance providers will look at your recurring revenue to determine how much they’re willing to lend you. Most set maximum loan amounts up to a third of the company’s ARR or four to seven times their MRR.

As a rule of thumb, if your business’ MRR is $200,000, you can get a revenue based loan for $800,000-$1,400,000. 


Repayment fees often vary between 6-12% of revenue, usually based on whether you plan to invest the funds in low-risk activities like advertising or higher-risk activities like hiring.

Revenue-based Finance in Action

Let’s say, for example, you’ve been loaned $50,000 on the condition that you pay back 10% of your monthly gross profit until the loan is repaid.

Your repayments may look something like this: 

  • Month 1: a profit of $30,000 means you pay back $3,000 of the loan 
  • Month 2: a profit of $60,000 means you pay back $6,000 of the loan
  • Month 3: a profit of $15,000 means you pay back $1,500 of the loan 

This continues until you have completely paid off the loan in full. If your profits suffer for a month or two, your repayments will decrease too, so you're not struggling to repay a loan your business can no longer afford. 

On the other hand, if your revenue shoots up one month, you pay a larger percentage and, therefore, a larger chunk of the loan. This significantly reduces your repayment term.

The Types of Revenue-based Finance

There are two common types of revenue-based loans. 

Variable collection

Variable collection is the most popular type of revenue based loan. Businesses take out a loan for a certain amount and repay it each month based on their gross profits. 

Flat fee 

Flat fee funding looks a little different to the variable collection model. With flat fee funding, you commit to paying a fixed percentage of your turnover every month for up to five years - usually at a rate of 1-3% 

This means that monthly repayments tend to be much lower than those in the variable collection model, but if you grow and scale quickly, you’ll end up paying far more over the term of the loan.

Revenue-based Financing vs Other Options

Understanding the difference between debt, equity-based, and revenue-based financing is the key to choosing the right funding option.

Debt financing

Debt funding models require startups to pay back a fixed amount with interest over an agreed period of time. Unlike revenue-based financing, the repayments are for a set amount each month and must be met in full. 

To secure capital in this way, startups are often required to provide a personal guarantee in case they can’t meet the repayment terms. It can be a good way to secure a large cash injection, but it can be high risk if your turnover isn’t consistent or if you’re selling in a fluctuating market. 

Revenue-based financing does not require a personal guarantee, years' of financial statements, or a long lead time, so is an increasingly popular choice for business owners.

Equity-based financing

Equity-based financing requires startups to hand over a portion of their ownership to lenders in exchange for a cash injection. There’s a lower risk involved with this model, but founders and directors end up losing part of their ownership and, therefore, part of their control over the company. 

It’s not just about having less control in making major decisions, either. The loss of shares also reduces the amount of future profits founders and directors have access to. 

Because revenue-based financing does not require founders to give up equity in their business, it's a popular choice for business owners that need funding to drive predictable revenue, for example, through advertising.

Advantages of Revenue-based Financing 

We’ve covered a lot of the benefits of revenue based financing already, but here's a full round-up of the advantages to securing revenue-based finance for your company.

Non-dilutive

Founders and directors retain full control over the company and decisions. This is crucial for start-ups who have the potential for rapid growth but just need a cash injection to help them get there.

No personal guarantee needed 

Founders and directors don’t need to put forward personal collateral against the loan, which makes it a far less risky option than traditional debt financing.  

Loan repayments are flexible 

Repayments are based on the performance of your business. If you do well, you pay more. If you don’t do so well, you pay less. 

Fast-growing companies settle quicker

Companies that grow quicker than expected can pay off the loan much quicker. 

Cheaper than equity

Repayment caps aren’t usually as high as interest so it's often a far cheaper option than securing investment from angel or VC investors.

Fast funding

Startups can secure revenue based financing within a day. Compare that to the months it takes to secure venture capital. 

Opens up other funding sources

Revenue-based finance encourages early-stage startups to grow and become more established, which makes traditional forms of funding more accessible.

Disadvantages of Revenue-based Financing

Although revenue-based financing has many benefits, there are a couple of things you should consider before partnering with a revenue-based financing provider.

Revenue required

Lenders will actively look at your business's ability to make revenue. If you’re pre-revenue, you might not be able to secure the funds you were hoping for. If your financial history is inconsistent, you may have the same issue.

Smaller loan amounts

Lenders generally cap loans based on your business's MRR. Which, if you’re a relatively small company, might mean a relatively small loan compared to what you could receive from an Angel round. However, you can often secure follow-on rounds from revenue based finance investors as your company grows. 

Required monthly payments 

If you’re only bringing in a small amount of revenue each month, you’ll still have to pay back the percentage of the loan, which can make it tricky to keep aside cash for growth activities.

Who can Benefit from Revenue-based Finance? 

While revenue-based finance has broad appeal, there are a few examples of companies that find it particularly helpful.

Companies with seasonal performance

Start-ups that do better at certain times of the year - such as ecommerce brands at Black Friday - will benefit from the performance-based nature of revenue-based financing.

They'll be able to stock up on inventory and shore up ad spend for the peak season, then quickly pay off their loan from the revenue they make at that time of year.

Companies that want to reach new markets

Revenue-based financing is a great option for companies that want to expand into new markets without diluting the ownership of the company.

Take, for example, an EduTech company that wants to get more funding without diluting equity. The upfront capital they can get from their revenue-based finance loan can be used to expand into new markets and reach new education providers.

Companies with predictable MRR

Revenue based repayments are dependent on MRR, so companies that have predictable and consistent monthly revenue are more likely to reap the rewards of this type of funding. 

For example, SaaS companies that structure their subscriptions to fit a monthly cadence will have a clear idea of how much revenue to expect each month. This predictability helps them plan their growth tactics without having to absorb higher loan repayments on particularly tight months. 

Is revenue-based financing right for you? 

Revenue-based financing is the perfect funding option if you don’t want to dilute equity or spend time on a funding round. The ability to make repayments based on your monthly revenue means you can keep growing without worrying about whether your profits will cover the cost of a set loan. 

Whether or not you plan to use other funding sources, any business owner looking to retain equity and grow quickly would benefit from introducing revenue-based financing as part of their funding strategy.

At Uncapped, we offer investment capital with offers ranging from £10k to £5m through a revenue share agreement similar to a merchant cash advance. See if you qualify