Revenue-based finance

How does revenue-based finance work?

You receive a lump sum upfront. In return, you agree to repay a fixed total amount, collected as a percentage of your future sales until that total is reached. The collection is usually automatic: either a slice of each day’s card settlements is diverted to the funder, or a regular debit is taken from your bank account based on recent deposits.

Because repayments follow sales, a slow Tuesday costs you less than a packed Saturday. That’s the main appeal over a fixed-repayment loan, particularly for businesses whose takings swing week to week.

Who uses it?

Revenue-based finance fits businesses with lots of small, frequent transactions:

• cafés, restaurants and takeaway shops,
• boutiques and specialty retailers,
• hair and beauty salons,
• gyms and studios, and
• online stores with steady order flow.

It’s less suited to businesses that invoice monthly on terms, where invoice finance usually fits better, or to businesses with very few, very large transactions.

Revenue-based vs fixed-repayment cash flow loan

	Revenue-based	Fixed cash flow loan
Repayments	Rise and fall with sales	Same every week or fortnight
Collection	Often daily from takings	Direct debit
Planning	Harder to predict exact payoff date	Clear end date
Quiet periods	Repayments shrink	Repayments stay the same

A cash flow loan is easier to plan around; revenue-based finance is gentler in slow weeks. Which you prefer depends on how predictable your trade is.

What does it cost?

Revenue-based funders usually quote a fixed total repayable amount (sometimes expressed as a factor of the advance) rather than an interest rate. Because the payoff date depends on your sales, the effective cost depends on how quickly you repay. Ask for the total dollar figure, and compare it with the benefit the money will create: new equipment, stock, a refit or a marketing push.

Before you sign

• Confirm the share of sales collected and how often.
• Check for minimum payment clauses that apply even in a slump.
• Ask what happens if you change card terminal providers.
• Make sure the advance is sized so daily collections still leave enough to run the business.

If you’re weighing this up against a line of credit or a seasonal facility, the loan matcher can help you narrow it down. Or enquire now for a specialist’s view.

An illustrative example

A busy suburban café wants a new coffee machine and a refreshed front counter. Takings are strong but vary with the weather and school holidays. A revenue-based advance repaid from daily card sales keeps repayments in step with trade. (Illustrative only.)

What else is revenue-based finance called?

Lenders, accountants and search engines don’t all use the same words. You’ll also see this entry described as Merchant cash advance, Card takings loan and EFTPOS loan. In our A–Z index every one of those names points back to this page, so whichever term you searched, you’ve landed on the same thing. If a lender uses a name you don’t recognise, ask them to describe how the security, the term and the repayments work; that tells you far more than the label.

Where does it sit in the directory?

This entry lives on the cash flow and unsecured shelf. It’s most often used for cash flow and working capital, buying, starting or growing a business, and the security usually involved is no property at all, with the business’s trading doing the work. It is one of the quicker entries to put in place when the paperwork is ready. Its closest neighbours are:

• Unsecured business loans — No property on the line — typically $5,000 to $500,000 for trading businesses.
• Bad credit business loans — Past defaults or a declined bank application don’t automatically end the conversation.
• Low doc business loans — Borrow on BAS, bank statements or an accountant’s letter when tax returns lag.
• Small business loans — The main options for sole traders, partnerships and smaller companies.

To compare all of them at once, filter the Loan Finder by purpose and security.

Common mistakes to avoid

• Applying with messy bank statements. Dishonours and long overdrawn stretches in the last three months weigh heavily on cash flow assessments.
• Mixing personal and business spending. A dedicated business account makes your turnover easy to read and your application easier to approve.
• Stacking several small loans. Multiple daily or weekly debits from different lenders make the next lender nervous and squeeze your cash flow.
• Ignoring the director’s guarantee. Unsecured doesn’t mean consequence-free; understand what you’re personally signing.
• Sizing repayments on your best month. Check they’re comfortable in an average or slow week, not just a busy one.

What should I ask before signing up for revenue-based finance?

A short list of questions saves a lot of regret. Put these to any lender or specialist before you commit:

1. How is the limit calculated? Ask which months of turnover were used and whether seasonal dips were taken into account.
2. How often are repayments taken? Daily, weekly and monthly debits feel very different in a small business account.
3. What does early repayment cost? Some products charge the full cost regardless; others discount it.
4. What does the guarantee cover? Understand whether it’s limited or unlimited and who is giving it.
5. Can the facility grow later? If trading improves, ask whether a top-up or limit increase is possible without starting again.

If an answer is vague, ask again or ask for it in writing. Good lenders are happy to explain their terms clearly.

Repayments that move with your trade

If your sales are frequent but uneven, revenue-based finance could be the right fit in the directory. Enquiring is quick, there’s no credit check at that stage, and your details go to one specialist rather than being shopped around to a stack of funders.

Tell us your average monthly card or online sales and what you want the funds for. Accurate figures give you a properly sized advance. Start your enquiry.