Revenue-Based Financing (RBF)
Definition
Revenue-based financing is a funding model where a business receives capital in exchange for a fixed percentage of ongoing monthly revenues until a predetermined amount is repaid. Similar to an MCA but typically structured with monthly (not daily) payments and longer terms, RBF is popular with SaaS companies, subscription businesses, and other companies with predictable recurring revenue. The repayment amount is usually 1.5–3x the original investment. Unlike equity financing, RBF does not require giving up ownership or board seats. Unlike debt, payments flex with revenue — if revenue drops, monthly payments decrease proportionally.
Example
A SaaS company with $100,000 in monthly recurring revenue receives $500,000 in RBF at a 1.8x return cap. They pay 5% of monthly revenue until $900,000 is repaid. In a $100K month, they pay $5,000. In a $150K month, they pay $7,500. Total repayment is capped at $900,000 regardless of how long it takes.
Related Terms
Factor Rate
A factor rate is a multiplier used to determine the total cost of a merchant cash advance or short-t...
Merchant Cash Advance (MCA)
A merchant cash advance is a financing arrangement where a business receives a lump sum of capital i...
Working Capital
Working capital is the difference between a business's current assets (cash, accounts receivable, in...
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