Revenue-Based Financing (RBF) is a form of growth funding in which a provider advances capital and the company repays it as a fixed percentage of ongoing revenue until a pre-agreed total, the repayment cap, has been paid. Founders give up no equity, and repayments shrink in weak months and grow in strong ones. Providers underwrite on recurring revenue, gross margin, churn and concentration by connecting to bank, billing and payment accounts, and collect by monthly debit or a split at card settlement. Because the cap is fixed, faster growth raises the effective annual cost. Unlike venture debt it carries no warrants or fixed schedule. On an acquisition, the unpaid cap behaves like debt and change-of-control clauses often make it due.
How does revenue-based financing work
Three terms define a deal: the advance, the revenue share, and the cap, expressed as a multiple of the advance. Providers underwrite on recurring revenue, gross margin, churn and customer concentration, usually by connecting directly to the company's bank, billing and payment accounts instead of relying on annual financial statements. That data connection is also how they monitor the business after funding.
Repayment is collected automatically, either by a monthly debit calculated from reported revenue or by a split at the point where the payment processor settles card funds to the company. Settlement splits leave the company little room to delay a payment, which is why providers prefer them for e-commerce businesses.
A worked example of RBF cost
Illustrative: a SaaS company with €100,000 of monthly recurring revenue takes a €300,000 advance with a 1.3× cap, meaning €390,000 in total repayments, and an 8% revenue share. At flat revenue it pays €8,000 a month and finishes in about 49 months. If revenue grows 3% a month, the share grows with it and the cap is reached in about 31 months.
The fee is a fixed €90,000 in both cases, so faster growth raises the effective annual cost. Founders comparing RBF with a term loan should convert the cap into an annual rate under their own growth forecast rather than compare the 1.3× multiple with an interest rate.
Revenue-based financing vs venture debt and MCA
Venture debt carries a fixed interest rate, a fixed amortisation schedule and usually warrants over equity. RBF has no warrants and no fixed schedule, but because the cap is fixed, a fast-growing company pays a high implied rate.
A merchant cash advance works on the same principle but targets card-accepting merchants, is priced with a factor rate, and is typically repaid through a holdback on daily card settlements arranged with the acquirer or payment facilitator. Depending on structure, both products are documented either as business loans or as purchases of future receivables. In US disputes over the second form, courts look at whether repayment is genuinely contingent on revenue; if it is not, the deal can be treated as a loan and become subject to lending rules.
RBF in a fintech acquisition
For a buyer of a company with RBF outstanding, the unpaid cap behaves like debt to be settled at closing, and agreements commonly include change-of-control clauses that make the remaining balance due. For a buyer of an RBF provider, value sits in underwriting data, loss rates by cohort, and how the book is funded, from the balance sheet or a warehouse facility. If it collects through settlement splits, its integrations with acquirers and PSPs are part of what is being bought.