Revenue-based finance: repay from a share of sales, and know what that share really costs

Revenue-based finance gives your company a lump sum now, which you repay as a fixed percentage of future revenue until an agreed total is reached. There's no interest rate: the price is the gap between what you receive and that total, often called the cap or repayment multiple. Like a merchant cash advance, it flexes with your sales and its true cost depends on how quickly you pay it off.

How it works

1. The provider looks at your recent revenue, usually by connecting to your business bank account, payment processor or e-commerce platform.
2. It offers an amount, a total to repay and a revenue share, for example "receive £50,000, repay £60,000 at 8% of revenue".
3. Each week or month, the agreed share of your revenue goes to the provider until the £60,000 is repaid.

The revenue share figure above is for illustration only. Providers set their own.

In practice, revenue-based finance tends to be offered to online retailers, software and subscription businesses, and others whose income comes through platforms that can be read automatically.

How the cost works

The total cost is fixed when you sign. The annual cost isn't, because it depends on how long you take to repay.

Worked example. You receive £50,000 and agree to repay £60,000 (a 1.20 multiple), taken weekly from revenue.

• If revenue is steady and the total clears in 12 months, the APR is about 37%.
• If sales grow and it clears in 6 months, the APR is about 73%.

The cost in pounds is £10,000 either way. The APR doubles because you had the money for half as long.

At other multiples, repaid weekly:

The MCA APR calculator does this maths for any multiple: enter the multiple as the factor rate and your expected repayment period as the term.

Sterling's take: plan on the fast-repayment case. If the business does well, that's the APR you'll actually pay.

Estimating the repayment period

Months to repay ≈ total repaid ÷ (monthly revenue × revenue share).

Say you repay £60,000 at 8% of revenue. On £62,500 a month, that's £5,000 a month and about 12 months. On £125,000 a month it's about 6 months. Run both numbers before you sign, because they give you very different APRs.

Who it suits

• Online and subscription businesses with steady, trackable revenue and healthy gross margins.
• Companies spending on something with a fast, measurable return: stock for a proven product, marketing with known payback.
• Founders who want to avoid selling equity and can't offer property as security.

Who it doesn't suit

• Low-margin businesses. A revenue share comes off the top, before costs, so 8% of revenue can be most of your profit.
• Seasonal businesses with a long quiet period, unless the agreement truly pauses when revenue stops.
• Companies using it to cover losses.

What funders look at

• Revenue data. Months of sales history, read directly from your platforms and bank account. Consistency matters as much as size.
• Gross margin and refunds. High refund or chargeback rates reduce what's offered.
• Companies House. Incorporation date, filed accounts, directors and any registered charges or debentures that rank ahead of them.
• Existing finance. Other revenue-share or advance debits on your bank statements.
• CCJs against the company, and sometimes credit checks on directors.
• Personal guarantees are less common here than with unsecured loans, but not unheard of. Ask.

Red flags

• A minimum payment that applies whatever your revenue does. That turns a flexible product into a fixed one.
• A "longstop" date that makes the whole balance due if it isn't cleared in time.
• Access to your bank account that lets the provider sweep more than the agreed share.
• Fees deducted from the amount you receive. Use the amount that actually lands, not the headline, when you work out the APR.
• No written answer on early settlement.

Business finance for limited companies is not regulated by the Financial Conduct Authority, so these terms are set by the contract alone. Read it.

Questions to ask before you sign

1. What amount lands in my account after every fee?
2. What is the total I repay, and what share of revenue goes towards it?
3. Which revenue counts: gross sales, sales after refunds, or everything that hits the bank account, including VAT?
4. Is there a minimum monthly payment, and is there a date by which the total must be repaid?
5. Can I settle early, and does that reduce the total?

The third question catches people out. If the share is taken from gross receipts that include VAT, part of each repayment is coming out of money that belongs to HMRC, and you'll still owe HMRC the VAT in full. Build that into your cash-flow forecast.

Revenue-based finance vs the alternatives