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Guide to Revenue-Based Business Loans

Guide to Revenue-Based Business Loans
Lauren Ward
Lauren WardUpdated August 17, 2022
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
With a revenue-based business loan, a financing company gives your business a lump sum of cash and, in return, you give them a certain percentage of your business’s future monthly revenues. Unlike traditional business loans, your monthly payments don’t stay the same, but instead rise and fall as your revenue rises and falls.Business loans based on revenue can be a good option for companies that have strong sales but aren’t able to qualify for other small business loan options. But this type of financing generally comes with higher costs than traditional business loans.Read on to learn all the pros and cons of business revenue financing.

What Is a Revenue-Based Loan?

A revenue-based small business loan is a type of cash flow loan that allows you to borrow against future revenue. With this type of financing, you receive a lump sum amount that is based on your monthly and annual revenue. Then, instead of making fixed monthly payments to pay the money back (as you would with a typical loan), the financing company takes a defined percentage of your total sales within each repayment period, which is typically one week or one month.When reviewing your loan application, a revenue-based lender focuses primarily on your revenue stream and your business plan. Lenders look for the potential to increase your revenue, since the faster your business grows, the lower the risk to the lender.A revenue-based loan is similar to a merchant cash advance. Like a merchant cash advance, your payments fluctuate with sales volume. With a merchant advance, however, payments come from debit and credit card sales. With a revenue-based loan, payments come from your total sales. Your borrowing amount is also based on total monthly receipts, which might allow you to access larger funding amounts than you could with a merchant cash advance (where the advance amount is only based on debit and credit card sales).

How Do Revenue-Based Loans Work?

With revenue-based business loans, the lender determines how much you can borrow based on your sales, as well as the payment frequency that would work best with your business. You may pay weekly or monthly depending on what the lender thinks you can handle.Revenue-based loans are not bound by the same regulations as bank loans. As a result, approvals and funding can be obtained in a relatively short period — generally much shorter than the months it may take a bank to reach a decision.Once you agree to the loan terms, the lender will provide you with a lump sum of capital, and soon after will begin deducting a percentage of your revenue. The percentage that is deducted in each payment period is known as the capture rate. Using this model, you should ideally never pay more than your business can handle. Because your payment amount fluctuates with your total sales, payments can, theoretically, go on for a long time. The typical range is between three and five years for many businesses.

What Can the Funds Be Used For?

Lenders typically expect these loans to be used to develop new products, expand your sales force, or venture into new markets. However, you can generally use the funds you receive through a revenue-based loan in any way you see fit. Often borrowers use the funds from a revenue loan in a way that will increase their sales and profit margins or to prepare for a busy season that is on the horizon. Higher revenues mean you will pay off the loan faster and, ultimately, pay less in interest.

How Are Revenue-Based Loans Paid Off?

Revenue-based loans are paid off over time, and the amount you pay each month depends on your total sales. Therefore, if you have a stellar few months in sales, it’s feasible you could pay off the loan during a busy season. However, if you have a slow month, your payment won’t be that much and it will take longer to pay off the loan. 

Pros and Cons of Revenue-Based Loans

Like all loan products, revenue-based loans have their share of pros and cons. When comparing it to other small business loans, consider the following benefits and drawbacks.


A key advantage of revenue-based business loans is that it is your revenue lenders look at — not how old your business is, not your collateral, and not your or your business’s credit score. Even if you can’t qualify for a traditional business loan, you may be able to get a revenue-based loan.For many business owners, it’s the repayment terms that make revenue-based loans particularly appealing. Term loans with fixed payments can work well if your business has consistent, reliable sales. But if your business goes through swings throughout the year, then a fixed monthly payment may not be ideal. With revenue-based loans, your payments should reflect what you can actually afford to pay. Unlike merchant cash advances, which only work if your customer base pays with either credit or debit cards, revenue-based loans can work for any business, regardless of how its customers choose to pay. All that matters with revenue-based loans is your total monthly revenue. Revenue-based financing also tends to carry longer terms than merchant cash advances. This is because the latter often requires a daily payment, while the former can be paid monthly or weekly. 


Revenue-based loans are often pursued by businesses that can’t qualify for traditional loans due to poor credit. From a lender’s perspective, poor credit increases the likelihood that you won’t be able to pay off the loan on time. To mitigate this risk, revenue-based financing often comes with high interest rates and fees. This type of loan can even be more expensive than a merchant cash advance because of the higher borrowing amounts and longer terms. Since your payment is tied to monthly revenue, your loan term fluctuates. While the faster you grow, the faster you pay off the loan, the opposite is also true – if your growth is slower than expected, the number of months needed to pay off the loan will grow.  This results in paying more interest over the term of the loan because the interest accumulates over a longer period of time. Sometimes lower growth is outside of your control, but you need to be aware of how this affects the cost of your debt.Finally, you’re giving up a portion of your revenue each month. That means you’ll have less cash available for other things – like taking advantage of new opportunities that come up, or addressing the unexpected. 

Is a Revenue Based-Loan Right for You?

If you don’t have the credit scores to get a traditional business loan, but have solid revenue – and a plan to make it grow even higher – a revenue-based business loan may be a good option for you. These lenders generally care more about where your business is going than where you came from. And, If you use the loan proceeds to develop new products, increase your sales force, or develop new sales initiatives, the result will likely be increased revenue, which will allow you to pay off the loan sooner and could make the high cost of the loan worth it.This might also be an appealing type of financing if you operate a seasonal business, since your payment will fluctuate along with your revenue and/or you need capital quickly, since it can be faster to get than a traditional loan.However, you might not be the best candidate for this type of loan if you aren’t certain that your business will be experiencing a solid amount of growth. If your business is struggling, the higher interest rates that come with this type of loan could become very problematic. In that case, you might want to look into other business loans for bad credit.Here’s a side-by-side look at the pros and cons of revenue-based business loans.

How to Find Revenue-Based Loans

Small businesses can usually acquire revenue-based loans through investment companies, financing institutions, revenue-based financing firms, and venture capital firms. Loan brokers may also be able to point you towards lenders offering revenue-based loans. 

Applying for Revenue-Based Loans

Applying for a revenue-based loan is similar to applying for any small business loan. You’ll likely need to gather appropriate paperwork that proves you are who you say you are and that your reported revenue is accurate. You may need to have:
  • Employer identification number
  • Business license and permits
  • Bank statements
  • Tax returns
  • Details on any other loans (if applicable)
  • Financial statements: 
    • Profit and loss statement
    • Cash flow statement
    • Balance sheet
  • Accounts receivable
  • Accounts payable
  • Documented plan to increase your existing business revenue
You can typically online and, once you submit your application, your chosen lender will review and verify your monthly and annual revenue statements. All in all, the underwriting process through loan disbursement can take as long as 30 days, but you’ll receive the loan amount in one lump sum.  Repayment begins shortly thereafter with the lender taking a percentage of your revenue each month until the loan is repaid in full with interest. 

Alternatives to Revenue-Based Business Loans

Viable alternatives to revenue-based business loans depend on the amount of money you need and how fast you need it. If you’ve been denied more traditional loan products, and are on the fence about going with a revenue-based loan, you may want to consider the following alternatives.

Business Credit Card

If you don’t need that much additional capital, you could consider a business credit card. Many business credit cards offer 0% intro APR, which could help you get through any cash flow issues you may be experiencing. The 0% intro APR period could last as long as 21 months, which could help you pay off any business expenses without racking up interest.  


Microloans are small amounts of funding intended to help start or grow a business. These loans commonly target specific groups, such as women, minorities, veterans, or others who may face barriers to accessing bank loans and other traditional means of funding

Peer-to-Peer Loan 

Peer-to-peer (P2P) lending is when a borrower receives funding directly from other individuals, cutting out the financial institution as the middleman. Borrowers and investors connect on P2P lending websites. Each site sets the rates and the terms and enables the transaction. This may be a viable option if you’ve been repeatedly denied capital using the more traditional route.


With this method of financing, a business collects small monetary contributions from a large group of people through an online crowdfunding platform. In some cases, you don’t have to pay the money back (just give each investor a “reward” or gift). However, developing a successful crowdfunding campaign can take a lot of time and effort. 

Angel Investor

If you’re willing to part with a little bit of equity, an angel investor may be able to help. Angel investors are usually high-net-worth individuals who are able to provide needed capital to start-ups and young businesses.

The Takeaway

Revenue-based financing is a way to get capital by pledging a percentage of future ongoing revenues in exchange for money invested. Revenue-based loans can be an option for any business struggling to get a traditional business loan, but has strong sales and a solid business model. While it’s possible to pay a lot in interest, if your sales are strong, you could pay off the loan within a reasonable amount of time. On the other hand, the cost associated with this type of financing can make it unappealing to many small businesses. If you’re interested in exploring other types of financing, Sofi by Lantern can help. With our online tool, you can quickly review and compare small business loan options that meet your business’s needs and qualifications. There’s no obligation and you only need to fill out one application.
Photo credit: iStock/AntonioGuillemThe tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.SOLC1221021

Frequently Asked Questions

Can you get a revenue-based loan with bad credit?
Is revenue-based financing good?
Do you have to have revenue to get a business loan?
Is revenue-based financing a loan?

About the Author

Lauren Ward

Lauren Ward

Lauren Ward is a personal finance expert with nearly a decade of experience writing online content. Her work has appeared on websites such as MSN, Time, and Bankrate. Lauren writes on a variety of personal finance topics for SoFi, including credit and banking.
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