Revenue-based funding providers

Understand this lender type

Revenue-based funders can structure repayment as a percentage of revenue, a capped multiple, fixed scheduled payments, or a blend. Some specialize in subscription businesses or digital merchants. Ask which entity supplies the funds and whether the agreement is debt, purchased receivables, or another legal structure.

How to assess the fit

Build a monthly model using the actual payment formula. Test lower sales, seasonal swings, refunds, and a strong growth period. Revenue is not profit, so compare payments with gross margin and the cash left after ordinary operating expenses. A business with predictable receipts can still have limited room for debt service.

Questions that deserve an answer

Check minimum payments, reconciliation rights, permitted deductions from revenue, reporting access, and any fixed maturity. Early repayment may not reduce the contractual amount. Account connections can be part of underwriting or ongoing monitoring, so inspect permissions and revocation consequences. This directory explains lender categories and does not represent a verified funding offer or relationship.

Define revenue before modelling a percentage

Revenue-based funding is a broad market label. Establish whether the agreement is a loan, a purchase of receipts or another arrangement, and identify the entity providing it. A sales-linked marketing description does not establish legal classification or a right to reduce payments. Ask which sales channels, taxes, refunds and chargebacks enter the calculation, and which minimum payments or maturity dates still apply.

Distinguish a lender using revenue to assess a business from a contract collecting a percentage of revenue. Those are different ideas. BDC’s Canadian technology financing material says recurring revenue can inform its assessment; that does not mean its repayment is automatically a percentage of sales. Read the proposed payment clause and build the forecast from that clause, not from the category name.

Source: FTC: small business financing issues · BDC: financing for technology companies

Work through a realistic scenario

Assume a fictional arrangement collects 8% of defined monthly receipts with no minimum. At $150,000 of receipts, the collection is $12,000; at $100,000 it is $8,000. If the business has a 30% contribution margin before fixed costs, the lower-sales case leaves $30,000 before financing, then $22,000 after it. With $25,000 of fixed costs, cash is negative $3,000. A declining payment did not prevent a cash deficit. The assumed definition, margin and absence of a minimum are illustrative, not provider terms.

Compare the good month and the weak month

Evaluate both growth and contraction. A strong month can accelerate collections under some structures, while a fixed financing charge may remain unchanged. A weak month may require a documented reconciliation rather than an automatic reduction. Compare with a revolving line or term loan using the same revenue forecast. Include every existing financing deduction so a new percentage does not look affordable only in isolation.

For subscription businesses, show how annual customer prepayments and future service costs enter the repayment model.

• Exactly which receipts form the payment base?
• Do minimums, fixed dates or reconciliation requests override the sales link?
• Does paying sooner reduce the contractual cost?
• What account access and reporting continue after funding?

Your next-step checklist

• Exact contractual revenue definition
• Repayment formula and cap
• Minimums and reconciliation process
• Gross-margin and downside-payment forecast