Does Revenue-Based Financing Take Equity in My Business?
No. Revenue-based financing gives you capital in exchange for a share of future revenue until a set total is repaid, and you keep full ownership of the business. There are no shares, no board seats and no investor with a say in how you run things.
How does revenue-based financing work?
A revenue-based financing provider gives you a lump sum. In return, you agree to pay back a fixed total, often expressed as a multiple of the amount you received, through a percentage of your revenue or a set payment tied to it. Once the total is paid, the arrangement ends.
Why do owners like it?
Equity investors take a slice of your company forever. They share in every future dollar of value, even after their money has done its work. Revenue-based financing ends when you've paid the agreed total. That appeals to owners who want growth capital without giving up control or selling part of the business they built.
How does it differ from an MCA?
Revenue-based financing and a merchant cash advance share a family resemblance: both are tied to your revenue rather than a fixed interest schedule. Revenue-based financing is often used by businesses with recurring or online revenue, can run longer and is sometimes sized on annual revenue and growth. An MCA is usually shorter and sized on recent bank deposits.
What do you give up with revenue-based financing?
You give up a share of revenue for a period, and the total cost is set up front. If revenue grows quickly, you pay off faster, which raises the effective cost per year even though the dollar total stays the same.
What are warrants and hybrid deals?
A few providers add a small equity component, called a warrant, to some deals. That's unusual in the small business market, but read the term sheet to make sure there's nothing like it in yours.
Who does revenue-based financing fit?
Subscription businesses, online sellers, software companies and service firms with steady, recurring revenue often fit well. Businesses with lumpy or project based revenue sometimes find a line of credit a better fit.
What should you ask a provider?
What's the total repayment amount? What percentage of revenue, or what payment, applies? How is revenue measured? Is there a minimum payment? Are there fees at funding?
Do you keep control of the business?
Because there's no equity, the provider doesn't vote, doesn't approve your hires and doesn't share in a future sale. Your obligations are the ones written in the agreement: pay the share, report revenue and follow the covenants. Everything else about running the business stays in your hands.
How can Afterfirst help with this?
Call 877-FUND-654 and tell us about your revenue model. Revenue-based financing is one of our five services, and we'll tell you whether it fits and what funders in our network are offering for businesses like yours.
What else do owners ask about this?
- What's in a revenue-based financing agreement?
- How much revenue-based financing can my business get?
- Can I get a merchant cash advance funded on a weekend?
More short answers on this topic are on the revenue-based financing and lines of credit FAQ, and the factor rate calculator runs the numbers for your own file.
Have a question we didn't answer?
Ask us on the call. Call 877-FUND-654 with any question. We call you back, usually the same business day, and we always talk with you before we shop your file.