Loan types
Revenue based financing, and why growing fast makes it cost more
You repay a fixed multiple of what you took, as a percentage of monthly revenue. The dollar cost never moves. The annual rate does, and it moves against you when sales climb.
Revenue based financing gives you a lump sum today and takes back a fixed multiple of it as a percentage of your monthly revenue, for as long as that takes. The total dollars you owe are set at signing and never change. The annualized rate is not set at signing, and almost nobody explains which direction it moves.
The structure is simple enough to fit in one line. You take $250,000. You agree to repay 1.22 times that, which is $305,000. You remit 7 percent of gross monthly revenue until the $305,000 is paid. There is no maturity date, no amortization schedule, and no interest accrual. When the cap is hit, the agreement is over.
What the cap actually costs you
The cap is usually quoted between 1.10 and 1.35 depending on how long the funder expects to wait. On a $250,000 advance at 1.22, the cost of capital is $55,000. That number is fixed. What is not fixed is the number of months over which you pay it, and that is the entire story.
Assume the business does $250,000 a month in revenue when the money lands. Seven percent is $17,500 a month, so the $305,000 clears in about 18 months. Now change one thing: revenue grows 5 percent a month. The remittance grows with it, the cap is reached in about 13 months, and you have paid the same $55,000 in five fewer months. Your effective annual rate went up by roughly ten points for the crime of having a good year.
| What revenue does | Monthly remittance at start | Months to cap | Total paid | Roughly what it annualizes to |
|---|---|---|---|---|
| Grows 5 percent a month | $17,500 and rising | 13 | $305,000 | 37 percent |
| Stays flat | $17,500 | 18 | $305,000 | 28 percent |
| Declines 3 percent a month | $17,500 and falling | 26 | $305,000 | 20 percent |
Read that table twice. Under a fixed cap, the slowest business gets the cheapest money and the fastest business pays the most. That is the opposite of every other credit product you have ever used, where growth earns you a better rate. If you are planning a step change in revenue, price that into the decision before you sign, not after. Our note on total cost of capital walks through the same arithmetic on other products.
How it differs from a merchant cash advance
Both products buy future revenue at a discount, and the legal paperwork often looks similar. The practical differences are real, though, and they decide which one fits.
- Payment rhythm
- Revenue based deals usually remit monthly or weekly against total revenue. An advance usually debits daily against card volume or the bank account.
- Data source
- Revenue based funders read a connected data feed: a payment processor, a store platform, or read only accounting access. An advance reads bank statements.
- Term
- Revenue based deals commonly run 12 to 36 months. An advance usually runs 4 to 12.
- Multiple
- Caps of 1.10 to 1.35 against advance factors of 1.15 to 1.49. The revenue based product is genuinely cheaper on the same dollars.
- Who writes it
- Revenue based funders want recurring or platform revenue. Advance funders will look at almost any deposit pattern.
If your revenue arrives through Stripe, Shopify, a subscription billing system, or anything else that produces a clean machine readable history, revenue based financing is usually the better trade. If your revenue arrives as checks and card batches with no platform behind it, an advance is often the only version of this structure you will be offered. The side by side comparison prices both on the same file.
What underwriting looks at
This is not a credit score product. It is a revenue durability product. The question underwriting is answering is not whether you will pay, it is how long the payback will take, because that is what sets their return.
- Trailing twelve month revenue and its shape. A flat line and a growth line get very different caps. A jagged line with one enormous month gets questions.
- Revenue retention. For subscription and repeat purchase businesses, monthly churn is the number that matters most. High churn means the remittance stream decays and the payback stretches.
- Gross margin. A 70 percent margin business can hand over 8 percent of revenue without noticing. A 12 percent margin distributor cannot. Funders size the remittance percentage off margin, not off revenue alone.
- Customer concentration. One customer at 40 percent of revenue is a single point of failure in a product that gets repaid out of revenue. See concentration risk.
- Existing positions. Any open advance or revenue share shows up as a debit in your statements. Disclose it. Funders will find it, and finding it beats being told.
Where it sits against everything else
Speed and cost move together, and this product sits in a specific pocket: faster and more expensive than a bank term loan, slower and cheaper than an advance. There is no product that is fastest and cheapest, and any pitch that claims otherwise is a pitch.
Two honest tests decide whether you belong in this pocket. First, does the money buy something that returns more than the cost inside the payback window? Inventory that turns twice, or paid acquisition with a proven payback period, can clear a 28 percent annualized hurdle. Covering a structural loss cannot. Second, would a line of credit do the same job for a third of the price if you waited three weeks? If yes, wait three weeks.
The clauses worth reading twice
- Minimum monthly payment. Many agreements set a floor, so a bad month still owes a fixed amount. That quietly converts a revenue share into a term loan on your worst month.
- Reconciliation and true up. If the funder estimates your remittance and debits a fixed amount, ask exactly how and when the true up happens and what you must submit to trigger it.
- Change of control and prepayment on sale. Most caps become due in full if you sell the business. If an exit is plausible inside the term, negotiate this before signing.
- Data access revocation. Cutting the funder off from your processor or accounting feed is usually an event of default, not just an inconvenience.
- Blanket lien. Most of these deals file a UCC-1 against all business assets, which will sit in front of the next lender you approach.
What Exp Capital does with this
Exp Capital Solutions is a broker. We do not fund revenue based deals, we do not approve them, and we do not set the cap. What we do is take one clean file, put it in front of the funding partners who actually price this structure well for your revenue shape, and lay the offers next to each other with the cap, the remittance percentage, the projected months to payoff at three revenue scenarios, and the total dollars all spelled out. If a line of credit or a term loan does the same job cheaper, we say so, even though those pay us less.