What's in a Revenue-Based Financing Agreement?
A revenue-based financing agreement sets the amount you receive, the total you'll repay, how payments are calculated from your revenue, how revenue is reported and what happens if revenue falls or the business changes hands. Reading those five parts tells you most of what matters.
What are the core numbers in an RBF agreement?
- The funding amount, and any fees taken from it.
- The total repayment amount, often expressed as a multiple.
- The revenue share percentage or the fixed payment tied to revenue.
- The payment frequency, often monthly or weekly.
How does the agreement measure revenue?
Agreements define revenue carefully. Some use gross revenue, others use net after refunds. Many connect to your bank, payment processor or accounting software to read revenue directly. Know exactly which number your payments are based on and how often it's measured.
Are there payment minimums and caps?
Some agreements set a minimum payment so the provider collects something even in a slow month. Others cap payments at a maximum. Many set an expected term with provisions if repayment runs much longer than planned.
What reporting does the agreement require?
Expect to share revenue data regularly, sometimes through an automatic connection. The agreement says what happens if you don't report or if the connection breaks.
Which covenants and defaults should you read?
Like any financing, these agreements list promises you make, such as not selling the business without notice or not taking on certain debt, and events that count as default. Read them closely, since they shape what you can do while the agreement is active.
What security and guarantees are included?
Many providers file a UCC financing statement and ask for a personal guarantee. The terms vary widely, so compare them across offers.
How does early payoff work?
Some agreements allow early payoff at a discount. Others require the full total regardless. If you expect to raise equity or refinance, this clause matters.
How does the revenue definition work in practice?
Two agreements with the same percentage can cost very different amounts if one measures gross sales and the other measures net revenue after refunds and fees. Ask for a worked example using your own last month of revenue, labeled as an example, so you can see how the payment would have been calculated. It's the fastest way to understand a clause that's easy to misread.
What happens on a change of control?
Many agreements require repayment of the remaining total if the business is sold or ownership changes. If a sale or a new investor is in your plans, read this section with your attorney before signing.
How do you compare two agreements side by side?
When you compare offers, put the total repayment, the percentage, the revenue definition, any minimum payment and the early payoff terms in one table.
How can Afterfirst help with this?
Send any revenue-based financing agreement to info@afterfirstmca.com or call 877-FUND-654. We'll walk through the numbers and the revenue definition with you and compare it with other offers in our network.
What else do owners ask about this?
- Does revenue-based financing take equity in my business?
- What revenue data do revenue-based financing funders look at?
- How much revenue-based financing can my business get?
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.