How revenue-based repayment actually works
You receive a set amount and agree to repay a fixed total. Payments are collected as a percentage of sales or deposits until that total is reached.
Say you receive $50,000 and agree to repay $62,500. The funder collects, for example, 10% of your deposits. In a $60,000 month, that is $6,000. In a $40,000 month, it is $4,000. The total never changes; only the pace does. Strong sales mean you finish sooner, slow sales mean it takes longer.
Some providers collect an exact share of each card batch. Others take a fixed estimated amount daily or weekly and adjust it periodically to match actual sales, a process called reconciliation. Read how reconciliation works before you sign either kind.
The cost is usually quoted as a factor, such as 1.25, meaning you repay $1.25 for every $1 received. Because the repayment period is not fixed, the effective annual cost depends on how fast sales repay it. Fast repayment means a higher annualized cost for the same dollar fee, so judge the offer in dollars and against the profit the money will produce.
The five terms that decide whether an offer is good
Compare total repayment, holdback percentage, collection method, reconciliation rights and early payoff treatment.
| Term | What it means | A good sign |
|---|---|---|
| Total repayment | Funded amount plus cost, in dollars | Stated clearly as one number |
| Holdback percentage | Share of sales collected | Low enough to cover rent, payroll and inventory after it |
| Collection method | Exact split of sales or estimated fixed debits | Method explained in writing |
| Reconciliation | Adjusting estimated debits to real sales | A simple, stated process you can request |
| Early payoff | What you owe if you pay ahead | A stated discount, or at least a clear answer |
Our guide to holdback percentage walks through how to pick a share your margins can handle.
An illustrative stress test across a seasonal year
Model the payment in your weakest month and your strongest month. A good offer leaves you solvent in both.
This is an illustrative example. A pool supply store receives $80,000 and agrees to repay $100,000 at a 12% holdback.
- Peak months (May to August): about $110,000 in sales, so about $13,200 a month collected.
- Shoulder months: about $60,000 in sales, about $7,200 collected.
- Winter: about $30,000 in sales, about $3,600 collected.
At that pace the $100,000 is repaid in about a year, with more than half collected in the four summer months. A fixed loan with the same total spread evenly would take about $10,000 a month even in January, when the store brings in only $30,000. For a business shaped like this, revenue-based repayment is worth its higher cost. For a business with flat monthly revenue, a fixed term loan may cost less for the same safety.
When revenue-based financing is the wrong tool
It is usually a poor fit for long-term purchases, for businesses with thin margins and flat sales, and for anyone already carrying several advances.
- Long-life assets: buildings and major equipment deserve longer, cheaper debt.
- Very thin margins: if the business keeps 5 cents of each dollar, a 10% holdback consumes more than all the profit.
- Stacked positions: each new advance takes another share of the same deposits. See revenue-based financing vs merchant cash advance for how the two compare.
- Steady, predictable revenue with strong credit: a term loan or line will usually cost less.
Red flags in revenue-based offers
Be wary of no reconciliation clause, holdback above what your margins can bear, confession-of-judgment clauses and pressure to renew early.
- A contract that calls payments a fixed daily amount with no way to adjust for actual sales. That is a loan in disguise without the protections of one.
- A confession of judgment clause, where allowed by law, that lets the funder skip court if they claim default.
- Early renewal pitches when you are only partway through repayment.
- No clear answer on what happens if your business closes or sales fall sharply.
Revenue-based financing through ROI Funder
ROI Funder places revenue-based financing for businesses with 6+ months of history, $20,000+ monthly revenue and a 500+ FICO, often funding the same business day on approved, complete files.
Apply online in a few minutes with a soft credit pull and three months of business bank statements. We match your file to the funders in our network that fit it, from $5,000 to $5,000,000, and show the total repayment, an estimated payback period and the monthly-equivalent payment at your current sales level before you sign. You are free to decline.
If your revenue is steady and your credit is solid, we will also show whether a term loan or line of credit would cost less. Our goal is the cheapest structure that fits your cash flow, not the fastest one to close.
Frequently asked questions
Is revenue-based financing a loan?
It is often structured as a purchase of future revenue rather than a loan, which affects how payments and defaults work. Read the agreement to see which applies.
What holdback percentage is reasonable?
It depends on your margins. The share collected should leave enough to cover rent, payroll and inventory in your slowest month.
Can I pay off revenue-based financing early?
Usually you can, but savings vary. Some agreements offer a discount for early payoff and others require the full amount. Ask before signing.
How fast does revenue-based financing fund?
Through ROI Funder, often the same business day to a few days once the file is complete and approved.
How do I compare a revenue-based offer with a term loan?
Convert both to total cost in dollars and an estimated monthly payment at your average sales. Then check the revenue-based payment in your slowest month, since that flexibility is what you are paying extra for.