Revenue-based financing vs. term loans
When a payment that rises and falls with your sales beats a fixed payment that never changes.
How the payments work
A term loan - a set amount you pay back over a set time - generally uses fixed payments. When they do, you send the same amount every month, busy or slow. Revenue-based financing, or RBF, may instead take an agreed share of your sales, or it may use a shorter fixed payment schedule, depending on the provider. Here's an example of the share version. You agree to send 8% of sales. In a $50,000 month you send $4,000. In a $30,000 month you send $2,400. A term loan at $2,000 a month wants $2,000 in both.
What each lender looks at
Underwriting is the lender's review of your business. RBF providers look hardest at your sales: how steady they are, whether customers keep coming back, and whether sales are growing. Term lenders often care more about profit, your credit, how much you already owe compared with what you bring in (that's leverage), and your past financial statements.
How to choose
Ask four questions. Can your cash flow handle the payment in a slow month? How fast do you really expect to grow? How soon do you need the money? What does each option cost in total dollars? Decide on those answers, not on which product sounds better.
Sources and review
This existing article is awaiting evidence review and migration to the new editorial format.
Review notes and methodology
Existing draft: not yet reviewed under the new publishing standard.
Educational information, not individualized financial, legal, tax or accounting advice. Examples are not financing offers. Any actual terms and availability depend on the provider’s review and the relevant agreements.