Revenue-based finance gives your business a lump sum now and takes it back as an agreed percentage of your sales until a fixed total has been repaid. Strong months repay more and weak months repay less. The cost is a flat fee set at the start, so the total in pounds never moves, but the effective annual cost swings a great deal depending on how fast you pay it off. It suits businesses with steady card, online or subscription income. It is poor value if your sales are thin, falling or slow to arrive.
Key Takeaways
- You receive a lump sum and repay it as a share of sales, usually collected daily, weekly or monthly, until a repayment cap is reached.
- The price is quoted as a factor rate, typically 1.1x to 1.5x the amount advanced, not as an APR.
- The pound cost is fixed. The annualised cost rises the faster you repay, because the same fee is spread over a shorter time.
- Typical entry tests: 3 to 6 months of trading, steady monthly revenue (often £10,000 or more), and no insolvency proceedings.
- There is no equity given up and usually no personal guarantee, but you must read the contract for minimum repayment clauses.
How revenue-based finance works
Three things are agreed before any money moves:
- The total to be repaid. This is the amount advanced plus a flat fee. It is usually written as a factor rate or a repayment cap.
- The revenue share. This is the percentage of sales the provider collects.
- The collection frequency. This is daily, weekly or monthly, and it is taken automatically.
Once the cap is reached, the obligation ends, however long that takes. There is no ongoing debt after that point. Compare that with a term loan, where you owe fixed instalments on a fixed date whatever the trading was like.
A seasonal example makes the mechanics plain. A pub taking £40,000 in a busy August might repay £4,000 that month. In a quiet January, taking much less, it might repay £1,200. The total owed is the same either way. Only the pace changes.
The fee, the factor rate and the repayment cap
These three terms describe the same idea from different angles. Providers do not quote an APR. They quote a factor rate, a fixed multiplier on the amount advanced, and UK factor rates typically sit between 1.1x and 1.5x. Where you land depends on how predictable and strong your revenue is and on the overall health of the business.
On a £20,000 advance at a factor rate of 1.15, you repay exactly £23,000. The £3,000 difference is the whole cost, and it is locked in when you accept. A cap works the same way. A £150,000 advance with a 1.4x cap means a total repayment of £210,000.
The fixed total has a useful side. If sales slow, you do not pay more for the extra time. It also has an expensive side, which the next sections cover.
A worked example
Take the £20,000 advance at 1.15, repaid at 10% of sales, with a total to repay of £23,000. The 10% share is an illustration. The actual percentage is agreed deal by deal.
| Slow trading | Strong trading | |
|---|---|---|
| Monthly sales | £20,000 | £40,000 |
| Monthly repayment at 10% | £2,000 | £4,000 |
| Months to repay £23,000 | 11.5 | 5.75 |
| Fee paid | £3,000 | £3,000 |
| Fee as a share of the advance | 15% | 15% |
| Fee annualised (simple basis) | about 15.7% | about 31.3% |
The annualised line is a simple scaling of the 15% fee to twelve months (15% x 12 / 11.5, and 15% x 12 / 5.75). Because you repay gradually, the average amount you owe is lower than £20,000, so the true APR-style figure is higher than these. Use them as a floor.
The point is the direction. Doubling your sales roughly halves the time the money is outstanding, and the same £3,000 fee is then paid for half as long. Revenue-based finance gets more expensive per year when your business does better than expected. That is the cost of fast, flexible money. If a good month is the reason you are repaying quickly, you have paid a premium for speed.
A second illustration shows the same effect on a larger cap. A £150,000 advance at a 1.4x cap with an 8% share collects £8,000 in a £100,000 month and £4,800 in a £60,000 month. If revenue grows quickly, the facility can clear in around 10 to 14 months. If revenue slows, it takes longer but the cap stays at £210,000.
Real cost compared with a term loan
A term loan is priced by interest and quoted as an APR. A £50,000 bank loan at 8% APR over five years costs about £1,014 a month and about £60,800 in total, so roughly £10,800 of interest.
Set that beside revenue-based finance and the picture is mixed:
- On a pounds-paid basis, a 1.15 factor rate costs 15 pence per £1 advanced, and it is gone within a year or so. The loan costs about 21.6 pence per £1 advanced, spread over five years.
- On an annual cost basis, revenue-based finance is the more expensive of the two, and often by a wide margin. The fee sits on a short repayment period, while the loan's interest is spread across five years.
We would not call that a flaw. A short-term fee on money that earns its keep inside a few months can be good value. Stock bought ahead of a peak season, or a marketing push with a quick payback, are the usual cases. It is poor value if the money funds something that pays back slowly, and a term loan is usually the better tool for those long-dated investments.
Speed is part of what you are buying. Funding typically lands within 24 to 48 hours of approval, where a bank decision can take weeks. A bank loan at 8% is cheaper. It is also unavailable to a lot of businesses that can still qualify here, and it may come with a personal guarantee, which revenue-based finance usually does not.
The risk: your repayment percentage comes off the top
The share is taken from revenue, not profit. On a business with a thin margin, a 10% revenue share can remove a large part of the profit you make on those sales. Model it before you sign. If margins are thin, the repayment can leave you short of cash in exactly the months you were trying to protect.
Two further points catch people out:
- Minimum repayment clauses. Many providers advertise that nothing is due when you take nothing. Some contracts nonetheless require a baseline amount within a set period, for example every 30 days or by a six-month threshold, whatever your sales. That undermines the flexibility you are paying for. Read for this clause specifically.
- Slow repayment is not a failure, but it is a drag. If revenue is weak, the repayment takes a long time and the share keeps coming out of every sale until the cap is met.
Who revenue-based finance suits
It works best where revenue is regular, largely digital or card-based, and growing:
- Online and e-commerce sellers, where funding can match sales cycles and inventory purchases.
- Subscription and software businesses, where predictable monthly revenue makes the share easy to forecast.
- Seasonal and hospitality businesses, because repayments fall away in quiet months.
- Agencies and service businesses with variable monthly income.
It works best when the money has a clear use that produces revenue soon: stock, hiring, marketing.
It suits poorly:
- Businesses with long revenue cycles, where the share is taken before the money from the project arrives.
- Thin-margin businesses, for the reason above.
- Businesses with declining or erratic revenue. A term loan or revolving credit is usually the better fit there.
- Businesses with no regular income stream yet. Very early-stage firms generally do not qualify.
If you are weighing this against an overdraft or a loan, our guide to a business overdraft or a loan covers the cheaper end of the market. For wider ways to ease working capital, see how to improve cash flow.
Eligibility: what providers look at
Providers underwrite your trading, not your assets. Typical requirements are:
- Trading history of at least 3 to 6 months. Some providers want six months of trading data and a consistent record.
- Steady monthly revenue. A minimum of £10,000 a month is common, and some providers set it higher.
- A UK registered business with no active insolvency proceedings and no serious unpaid court judgments (CCJs).
- For some providers, an online model such as e-commerce, SaaS or subscription.
Advances are sized off revenue. Most providers lend around one to two times monthly revenue, so a business turning over £50,000 a month might be offered £50,000 to £100,000. Strong, consistent trading can push the multiple higher. Indicative terms scale with size: at £10,000 a month, an advance of £10,000 to £20,000 repaid over 6 to 18 months, and at £100,000 a month or more, £100,000 to £200,000 or more over 12 to 24 months.
The application is usually quick, often with a soft credit search that leaves no footprint, and open banking data is commonly used instead of a business plan. You are unlikely to need collateral or a personal guarantee, but check the terms each time.
How it differs from a merchant cash advance
The two are close cousins and are often used interchangeably. Both advance cash against future revenue and both are repaid as a percentage of sales. The differences are in structure and in what drives the repayment:
| Merchant cash advance | Revenue-based finance | |
|---|---|---|
| What repayments follow | Card payment volume through your card machine | Broader revenue, such as bank deposits or overall turnover, sometimes with card data |
| Collection | Taken from each day's card sales | Daily, weekly or monthly, depending on the product |
| Typical borrower | High-street and card-taking businesses | Larger advances, or firms with meaningful non-card income |
| Cost | Often the most expensive form of business finance, so work out the effective annual cost before signing | A flat fee or factor rate; effective cost depends on speed of repayment |
In practice, a high-street trader will find the day-to-day experience very similar. What matters more is the factor rate, the repayment percentage, the early settlement terms and any minimum repayment clause. We cover the card-takings version in our guide to the merchant cash advance.
How it differs from equity
Equity means selling part of your business to investors. Revenue-based finance does not. The provider has no ownership interest, takes no board seat and gains nothing from a later sale. Once the cap is paid, the relationship ends. The price of that is real cash repayments out of sales, which equity does not require.
Early repayment and tax
Early settlement terms vary by provider. Some charge a fee, some allow it at no cost and some offer a discount. Because the fee is fixed, early repayment only saves you money if the provider discounts it. If you pay early without a discount, you have still paid the full fee for a shorter period. Ask before accepting.
The funding cost, which is the difference between what you receive and what you repay, is treated as a business expense in most cases. How it is shown in your accounts depends on how the advance is classified, so confirm the treatment with your accountant before the money lands.
Frequently Asked Questions
Is revenue-based finance a loan? It behaves like unsecured lending and is generally accounted for in a similar way, but there is no interest rate and no fixed instalment. You repay a share of sales until a fixed total is reached.
What does it cost? The cost is the factor rate, typically 1.1x to 1.5x the advance. A 1.15 factor rate on £20,000 costs £3,000 whatever the repayment period. The annualised cost rises if you repay quickly.
Can a business turning over £10,000 a month get it? Often yes, if it has traded for at least 3 to 6 months with steady revenue. At that level an advance of roughly £10,000 to £20,000 is typical, though providers set their own minimums.
What happens in a bad month? Repayments fall with sales. Check the contract for a minimum repayment clause, which can require a baseline payment whatever you take.
Do I need a personal guarantee? Usually not, but terms vary by provider. Confirm before you sign.
If you are comparing a factor rate with a term loan, we can lay the two out in pounds and per year against your own sales figures. That is a short exercise on the Deplexifi UK side and it is usually where the right answer becomes obvious.
The fee is fixed in pounds, so repaying faster raises the effective annual cost. A good trading month makes the money more expensive per year, not cheaper.