Revenue-based financing (RBF) advances your business a sum of money and collects repayment as a fixed percentage of your revenue until a repayment cap — a multiple of the advance — is reached. There is no interest rate, no fixed term and no fixed payment: how long repayment takes is an output of how fast your revenue runs. That structure is genuinely different from a loan, and it is also routinely confused with a different product wearing the same name. This page teaches the mechanics of the classic revenue-share structure, works the cost math at three revenue speeds, and gives you the contract tells that separate true RBF from a factor-priced advance — including the boundary with a merchant cash advance.
General information, not financial advice.
A revenue-share deal has three numbers:
Because the total is fixed by the cap while the schedule floats with revenue, there is no amortization table and no payoff date. Your margin has to survive the remittance: a business running thin gross margins hands the provider a percentage of revenue it cannot spare, which is why RBF concentrates in recurring-revenue, e-commerce and subscription businesses with predictable sales — and why a business with no revenue yet is structurally excluded (the year-one alternatives are mapped in startup business loans).
The fee in an RBF deal is fixed by the cap. What changes with your revenue is only how fast you pay it — and compressing the same fee into less time raises its effective annualized cost. Worked on a $60,000 advance, 1.25× cap ($75,000 total, $15,000 total cost) and a 10% remittance rate:
| Monthly revenue | Remitted per month | Months to reach the cap | Total cost | Simple annualized cost* |
|---|---|---|---|---|
| $50,000 | $5,000 | 15.0 | $15,000 | ≈20% |
| $100,000 | $10,000 | 7.5 | $15,000 | ≈40% |
| $200,000 | $20,000 | 3.75 | $15,000 | ≈80% |
*Simple annualized cost = (total cost ÷ advance) × (12 ÷ months), an approximation shown to make speeds comparable; an average-balance calculation runs higher still. The dollars never change — only the clock does.
Read the table the uncomfortable way: the business that triples its revenue pays the identical $15,000 but hands it over in under four months, at roughly four times the annualized rate of the slower business. RBF’s flexibility in a bad month — payments fall with revenue — is real, and so is this asymmetry in a good one. Model both before signing, and compare against a fixed-payment product on the same advance: the working capital calculator prices that alternative.
A large share of what online lenders sell as “revenue-based financing” is not the structure above. It is priced by a factor rate — advance × factor = a fixed total owed — and collected by fixed daily or weekly ACH debits that do not move with your actual revenue. Same vocabulary, different machine. Three contract tells separate them:
Disclosure law is catching up with the confusion: several states, California and New York among the first, now require commercial-financing disclosures — including APR-equivalent figures — for sales-based financing offers. If your state requires a disclosure box, your provider has to give you one. Ask for it; the answer is itself a tell.
The two products are confused because both collect against future sales. The contract mechanics differ in one fundamental way. A merchant cash advance is a purchase of future receivables at a discount: the funder buys a fixed dollar amount of your future receipts for a discounted purchase price, you remit a percentage of receipts until that purchased amount is delivered, and the contract is drafted as a sale, not a loan — which is why MCA pricing uses factor rates and sits outside lending law. Classic RBF is a financing of the business against its revenue stream: you owe a capped multiple of an advance, and the obligation is defined by that cap — you have not sold a pool of receivables.
The practical questions at signing: What did I sell or borrow against — a fixed amount of future receipts (MCA), or an advance with a repayment cap (RBF)? Do my debits float with actual revenue or are they fixed? Is the reconciliation right real? This page owns the revenue-share side of that line; MCA mechanics proper — the purchase agreement, factor math, stacking and defaults — get their own treatment in the merchant cash advance cluster, and the comparison will be linked from both sides.
How does revenue-based financing work? A provider advances a sum sized to your revenue; you remit a fixed percentage of revenue (commonly 3–15%) until total repayments reach a cap, typically 1.1×–1.5× the advance. There is no interest rate or fixed term — the schedule is produced by your revenue speed, which is also what determines the effective cost.
What is a remittance rate (or holdback rate)? The percentage of each period’s revenue the provider collects toward the cap. “Remittance rate” is the term in classic revenue-share contracts; “holdback” comes from card-processing products where the share is withheld from settlements. Multiply it by your monthly revenue and you have your monthly payment — at that month’s revenue, and only that month’s.
Is revenue-based financing the same as a merchant cash advance? No — though factor-priced “revenue-based” advances blur the line deliberately. An MCA is a purchase of a fixed amount of your future receivables at a discount, drafted as a sale rather than a loan. Classic RBF is a financing repaid to a capped multiple of the advance. The tells are what the contract says you sold or borrowed against, whether debits float with revenue, and whether reconciliation is real.
How much does revenue-based financing cost? In dollars: the cap minus the advance — on a 1.25× cap, $15,000 on a $60,000 advance, whatever happens. As an annualized figure it depends entirely on speed: the worked example above runs from roughly 20% at a 15-month repayment to roughly 80% at under four months. Any provider quoting you a single “rate” for RBF without asking about your revenue pace is quoting the wrong product or hiding this math.
Sources: Provider and practitioner guides (Bridge, Eightx, Angels Partners, runfutureproof, Credibly, Crestmont, ByzFunder) — pricing ranges are reported market practice; there is no federal program or regulator-published rate for this product. Worked example computed from the stated advance, cap and remittance rate. Currency verified 2026-10-23.