Revenue-based finance (RBF) is a growing alternative to traditional term loans. Instead of fixed monthly repayments, you pay back a percentage of your monthly revenue until a total repayment cap is reached. Here is how it compares to a conventional business loan.
How revenue-based finance works
The provider advances a lump sum. You repay it by sharing a percentage of your monthly revenue — typically 2% to 10% — until you have repaid the principal plus a fixed fee (often called a factor rate or cost multiplier). There are no fixed monthly amounts; if your revenue drops, your repayment that month is smaller. If your revenue surges, you repay faster.
How a business loan works
A term loan delivers a fixed amount upfront and is repaid in equal monthly instalments over a set term — regardless of how the month's trading went. The total cost is usually set as an interest rate or flat fee at origination.
Comparison
| Factor | Revenue-based finance | Business loan |
|---|---|---|
| Repayment | % of monthly revenue — variable | Fixed monthly amount |
| Term | Varies with revenue performance | Fixed (e.g. 6 or 12 months) |
| Cost comparison | Factor rate / multiplier (can be opaque) | Interest rate or flat fee (usually transparent) |
| Best suited to | Revenue-volatile or high-growth businesses | Businesses with predictable monthly revenue |
| Upfront clarity | Total payable known, term less predictable | Both total payable and term are fixed |
| Personal guarantee | Varies by provider | Credicorp: none |
When RBF can make sense
Revenue-based finance suits businesses where revenue is lumpy — e-commerce companies with seasonal spikes, SaaS companies with subscription revenue that can be verified, or businesses where tying repayments to income reduces insolvency risk if a bad month hits. The flexibility can be genuinely valuable.
When a business loan may be better
A fixed-term loan gives you certainty: you know exactly what leaves your account each month, which makes budgeting and cashflow management easier. If your revenue is relatively stable and predictable, the cost of a business loan is often lower than the total payable under an RBF facility at the same principal amount.
Comparing cost
RBF providers express cost as a factor rate (e.g. 1.25x — meaning you repay £125 for every £100 borrowed). Converting this to APR can be difficult because the repayment period depends on your revenue. Always calculate the total cost of credit for both options on the same principal amount before deciding. See total cost of credit explained.
See also: Total cost of credit explained, Merchant cash advance vs term loan, Fixed vs flexible repayments compared.