Revenue-based financing (RBF) is a form of business funding where a finance provider advances a lump sum of capital in exchange for a fixed percentage of the business’s future revenue until an agreed total amount has been repaid. Unlike a traditional business loan, repayments rise and fall in line with your income — when revenue is high, you repay more; when revenue dips, you repay less.
This makes RBF particularly attractive for businesses with recurring or predictable revenue streams, such as SaaS companies, subscription-based businesses, and e-commerce brands.
How Revenue-Based Financing Works
The Basic Mechanics
- The provider assesses your business based on revenue history and projections
- You receive a lump sum — typically 1 to 6 months’ worth of monthly revenue
- You repay by giving the provider a fixed percentage of your monthly (or daily) revenue
- Repayments continue until you have repaid the advance plus a fixed fee (the repayment cap)
- Once the cap is reached, the arrangement ends — there is no ongoing obligation
Key Terms
| Term | Meaning |
|---|---|
| Advance amount | The lump sum you receive upfront |
| Revenue share percentage | The fixed % of revenue paid to the provider each period (typically 5-25%) |
| Repayment cap | The total amount to be repaid (advance + fee), usually 1.1x to 2x the advance |
| Factor rate | The multiplier applied to the advance to calculate the repayment cap |
Example
A business receives an advance of £100,000 with a factor rate of 1.3x and a revenue share of 10%:
| Month | Monthly revenue | Repayment (10%) | Remaining balance |
|---|---|---|---|
| 1 | £50,000 | £5,000 | £125,000 |
| 2 | £60,000 | £6,000 | £119,000 |
| 3 | £45,000 | £4,500 | £114,500 |
| 4 | £70,000 | £7,000 | £107,500 |
| … | … | … | … |
The total repayment is £130,000 (£100,000 x 1.3). The time it takes to repay depends entirely on how quickly revenue comes in.
Costs and Pricing
RBF is not priced as an interest rate because the repayment period is variable. Instead, providers use a factor rate or flat fee:
| Factor rate | Fee on £100,000 advance | Total repayment |
|---|---|---|
| 1.1x | £10,000 | £110,000 |
| 1.3x | £30,000 | £130,000 |
| 1.5x | £50,000 | £150,000 |
| 2.0x | £100,000 | £200,000 |
To compare RBF costs with a traditional loan, you can calculate the effective APR based on assumed repayment timelines. For example, a 1.3x factor rate repaid over 12 months is roughly equivalent to a 50-55% APR. Repaid over 18 months, the effective APR drops to around 35-40%.
This makes RBF significantly more expensive than a bank loan but potentially cheaper than giving up equity in your business.
Who Qualifies
RBF providers typically look for:
| Criterion | Typical requirement |
|---|---|
| Monthly revenue | Minimum £10,000 - £50,000 per month |
| Trading history | At least 6-12 months of revenue data |
| Revenue consistency | Predictable, recurring revenue preferred |
| Payment processor data | Access to Stripe, GoCardless, or bank transaction data for verification |
| Profitability | Not always required — revenue trajectory is more important |
Because RBF is secured against future revenue rather than assets, it is accessible to businesses without significant physical assets or property. There is usually no personal guarantee required, and the provider does not take equity or a board seat.
RBF vs Other Financing Options
| Feature | Revenue-Based Financing | Bank Loan | Equity Investment |
|---|---|---|---|
| Repayment | % of revenue (variable) | Fixed monthly instalments | No repayment (ownership diluted) |
| Cost | Factor rate 1.1x-2.0x | Interest rate 3-12% | Equity dilution (potentially 10-40%) |
| Security | Revenue assignment | Assets or personal guarantee | None (equity stake) |
| Speed | Days to weeks | Weeks to months | Months |
| Control | No equity dilution, no board seat | No equity dilution | Investor influence, board seat |
| Flexibility | Payments adjust to revenue | Fixed payments regardless of revenue | No payments |
Compared to debt financing, RBF offers flexibility. Compared to equity, it preserves ownership. The trade-off is cost — RBF is more expensive than most debt but avoids permanent dilution.
When RBF Makes Sense
RBF is well-suited to:
- SaaS and subscription businesses with monthly recurring revenue (MRR)
- E-commerce businesses with consistent online sales and card payment data
- Businesses scaling quickly that need capital for marketing, inventory, or hiring and can demonstrate a clear return on investment
- Companies that want to avoid equity dilution but cannot access affordable bank lending
- Seasonal businesses that benefit from repayments adjusting to revenue fluctuations
When RBF Does Not Make Sense
- Pre-revenue startups — You need an existing revenue stream to qualify
- Low-margin businesses — The revenue share percentage can consume too much of a thin margin
- Businesses with volatile or declining revenue — The repayment period extends, increasing the effective cost
- Capital expenditure with long payback periods — If the investment will not generate revenue for months or years, the revenue share puts pressure on cash flow before the returns materialise
UK RBF Providers
The UK market for revenue-based financing has grown significantly. Major providers include:
| Provider | Typical advance | Revenue share | Notes |
|---|---|---|---|
| Uncapped | £10k - £10m | 5-25% | SaaS and e-commerce focus |
| Outfund | £10k - £10m | Variable | E-commerce and subscription |
| Capchase | Custom | Custom | SaaS-focused, US and UK |
| Clearco | £10k - £10m | Variable | E-commerce, data-driven |
Providers differ in their underwriting approach, speed of funding, and the data sources they require (e.g. Stripe, Shopify, Xero, bank feeds). Shopping around is essential.
Accounting Treatment
Revenue-based financing is typically classified as a financial liability on the balance sheet. The advance is recorded as a liability, and repayments reduce it:
When the advance is received:
Debit: Bank
Credit: RBF liability
Each repayment period:
Debit: RBF liability (principal portion)
Debit: Finance costs (fee portion)
Credit: Bank
The fee (the difference between the advance and the repayment cap) is spread over the expected repayment period as a finance cost in the profit and loss account. The exact accounting treatment depends on the terms of the agreement and whether the arrangement is classified as a loan or a factoring arrangement.
Tax Treatment
- The fee element of RBF repayments is deductible as a business expense for Corporation Tax or income tax purposes, similar to interest on a loan
- The advance itself is not taxable income — it is a liability
- VAT is not typically charged on RBF fees (financial services exemption)
Discuss the classification with your accountant, as the treatment may vary depending on the specific contract terms and how the arrangement is structured.