For many startups and growing businesses, finding funding options can be a challenge. Traditional loans often require collateral, personal guarantees or extensive credit history, which aren’t always realistic for newer businesses.
That’s where revenue-based business loans come in. Also known as revenue-based financing, these loans allow companies to borrow and repay based on a percentage of their monthly revenue, providing the capital they need to grow without giving up equity or risking personal assets.
In this guide, we’ll break down what revenue-based business loans are, how they work, the types available and the pros and cons.
Revenue-based business loans are a flexible type of funding that provides businesses with capital to fuel growth. Also referred to as “revenue-based financing,” this type of loan is ideal for startups and small businesses with steady revenue streams wanting to retain 100% ownership but don’t qualify for traditional financing.
You can technically use these loans for any expense, but they’re mostly used to expand the company in some way — often by increasing sales, developing new products or hiring additional staff. Repayments are based on a percentage of your business’s monthly revenue, which makes them a good option for companies with fluctuating income.
Revenue-based business loans provide a fixed amount of money, which your business repays with a percentage of its monthly revenue. Let’s take a closer look at how this type of financing works.
Businesses can typically borrow between $25,000 and $10 million, depending on their annualized revenue run rate or monthly recurring revenue (MRR). An annualized revenue run rate is how much your business expects to make in the future based on past revenue. An MRR is how much your business has consistently made over the past few months.
Typically, companies can borrow up to a third of their annualized run rates or around four to seven times their MMRs.
Instead of charging interest, lenders multiply your loan amount by a number called a repayment cap, often between 1.5x and 2.5x. That means your business pays between 1.5 and 2.5 times the amount it borrows when it takes out a revenue-based financing loan, no matter how much time it takes to pay it back.
The monthly repayment percentage runs between 1% and 3% of your business’s monthly revenue, though it can sometimes get as high as 10%. The more your business brings in each month, the faster it pays off the loan.
Revenue-based financing usually comes with longer terms, running between three and five years. Your business needs to pay off the loan within the loan term, regardless of how much money it actually brings in. And unlike with business term loans that come with interest, your business won’t save money by paying off the loan early.
Let’s say your growing e-commerce company applies for a revenue-based business loan to fund its expansion. The lender approves $200,000 in financing, with a repayment cap of 1.5x the loan amount. This rate means you will repay a total of $300,000 ($200,000 x 1.5 = $300,000).
Instead of fixed monthly payments, you’ll repay the loan by committing 3% of your company’s monthly revenue. If the company brings in $100,000 one month, you’ll pay $3,000 (3% of $100,000) toward the loan that month.
If the next month’s revenue drops to $80,000, the payment would decrease to $2,400 (3% of $80,000). The flexible repayments continue until your company has repaid the full $300,000.
Revenue-based business loans come in several forms, each designed to cater to different types of businesses. Let’s take a closer look at five of the most common types.
Best for: A merchant cash advance is best for businesses with steady credit card sales.
Loan Amounts: $2,500 to $500,000
Terms: Typically up to one year
Repayment Percentage: 10% to 20% of daily sales
Costs: Factor rates of 1.1x to 1.5x, meaning you pay 1.1 to 1.5 times the amount borrowed
Best for: Invoice factoring is best for B2B businesses with unpaid invoices needing immediate cash flow.
Loan Amounts: 70% to 90% of invoice value upfront
Terms: Based on invoice due dates, usually 30 to 120 days
Repayment Percentage: N/A (repaid as the invoice is collected)
Costs: Fees range from 1% to 5% of invoice value
Best for: Inventory financing is best for retailers, wholesalers or manufacturers that can use inventory as collateral..
Loan Amounts: Up to 80% of inventory value
Terms: Typically 6 to 36 months
Repayment Percentage: N/A (paid in monthly installments or when inventory is sold)
Costs: May be fees for inventory appraisal, loan origination, prepayment, etc.
Best for: Royalty-based financing is a type of revenue-based financing that’s best for technology, entertainment or product development businesses..
Loan Amounts: Typically $100,000 to $7 million
Terms: Flexible, tied to specific product or project revenue
Repayment Percentage: 1% to 10% of revenue from the project or product
Costs: 1.5x to 2.5x repayment cap, based on agreed-upon royalties
Best for: Another type of revenue-based financing, SaaS financing is best for software companies with predictable subscription revenue.
Loan Amounts: $100,000 to $15 million, depending on revenue
Terms: 3 to 5 years
Repayment Percentage: 1% to 10% of MRR
Costs: Repayment caps typically range from 1.5x to 2.5x
Here are our picks for the top revenue-based business loans.
Lendio business loans
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Lendio is a loan marketplace that connects business owners with multiple lenders offering various financing options, including revenue-based loans. It simplifies the loan application process by allowing businesses to apply once with just a soft credit check and be matched with multiple lenders.
| Loan amount | up to $2 million |
|---|---|
| Starting Factor Rate | 1.08 |
| Min. Credit Score | 500 |
| Loan amount | up to $2 million |
|---|---|
| Starting Factor Rate | 1.08 |
| Min. Credit Score | 500 |
Fundera business loans
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Fundera is a business loan marketplace that connects small business owners with multiple lenders offering multiple types of financing, including revenue-based loans. While Fundera does not directly issue loans, it acts as a matchmaker, helping businesses find the best loan products suited to their needs — without dinging their credit score.
| Loan amount | Varies by lender |
|---|---|
| Min. Credit Score | 550+ depending on the lender |
| Loan amount | Varies by lender |
|---|---|
| Min. Credit Score | 550+ depending on the lender |
PayPal Working Capital loans
PayPal Working Capital loans offer an alternative form of financing for businesses that use PayPal to process sales. The loan amount is based on a percentage of your company's PayPal sales, with repayment automatically deducted from future sales. This payment structure makes it a flexible option, especially for online businesses with fluctuating revenue.
| Loan amount | Up to $200,000 for first-time borrowers |
|---|---|
| Min. Credit Score | Not required |
| Loan amount | Up to $200,000 for first-time borrowers |
|---|---|
| Min. Credit Score | Not required |
Kapitus business loans
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Kapitus offers revenue-based financing along with other small business loans and financing solutions. It tailors its revenue-based loans to businesses with predictable cash flow, and repayment is tied to a percentage of monthly revenue, making it flexible for growing businesses.
| Loan amount | Up to $650,000 |
|---|---|
| Starting Factor Rate | 1.12 |
| Min. Credit Score | 650 |
| Loan amount | Up to $650,000 |
|---|---|
| Starting Factor Rate | 1.12 |
| Min. Credit Score | 650 |
Lighter Capital business term loans
Lighter Capital specializes in providing revenue-based financing to high-growth SaaS and tech companies. Its flexible financing allows businesses to repay based on a percentage of monthly revenue without giving up equity. After you repay your first loan, Lighter Capital makes it easy to get more funding, helping you grow your business faster.
| Loan amount | Up to $4 million |
|---|---|
| Min. Credit Score | Not disclosed |
| Loan amount | Up to $4 million |
|---|---|
| Min. Credit Score | Not disclosed |
SaaS Capital
SaaS Capital offers flexible loans from $2 million to $15 million for B2B SaaS companies with at least $250,000 in monthly revenue. You can borrow as needed over two years, with the option to extend or start repaying after that. As your revenue grows, the amount you can borrow increases, and you only pay interest on what you actually use, helping you save on costs.
| Loan amount | $2 million to $15 million |
|---|---|
| Min. Credit Score | Not stated |
| Loan amount | $2 million to $15 million |
|---|---|
| Min. Credit Score | Not stated |
Credibly business financing
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Credibly offers a variety of small business financing options to meet the diverse needs of growing businesses. Its working capital loans, merchant cash advances and invoice factoring are ideal for businesses that need fast access to cash. Credibly stands out for its fast approval process and relatively relaxed credit requirements, making it accessible to business owners with low credit scores or shorter time in business.
| Loan amount | $5,000 to $600,000 |
|---|---|
| Starting Factor Rate | 1.11 |
| Min. Credit Score | 500 |
| Loan amount | $5,000 to $600,000 |
|---|---|
| Starting Factor Rate | 1.11 |
| Min. Credit Score | 500 |
To help you decide if revenue-based financing is right for your business, weigh the pros and cons.
If you’re looking for other ways to fund your business, here are a few alternatives to revenue-based business loans for you to consider:
Revenue-based financing could be a good option for companies with steady revenue that don’t qualify for traditional funding or don’t want to give partial ownership to investors. It offers flexible repayments that vary based on your monthly revenue, so you won’t have a fixed payment each month.
However, revenue-based business loans are more expensive than traditional loans, so you’ll want to weigh the pros and cons carefully before deciding if it’s the right choice. If you’re curious about other financing options, read our business loans guide to find more ways to fund your company and compare lenders.
Yes, you can. Often referred to as “revenue-based financing,” this type of funding is based on your monthly or annual revenue. The typical requirements for revenue-based business loans include:
Revenue-based financing is a loan that’s repaid with a percentage of your business revenue over time. It allows you to retain 100% ownership over the business. Equity financing involves selling ownership stakes in your company to investors in exchange for capital.
No, your business doesn’t need to be profitable to qualify for a revenue-based business loan, but it needs to meet minimum monthly or annual revenue requirements.
The amount of revenue required often varies by lender but is typically at least $15,000 per month.
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Current merchants may be able to take advantage of a loan with extremely flexible repayments
Get funding of up to $500,000 with the benefit of early repayment discounts for qualifying borrowers.