What Is Revenue-Based Finance and How Can It Help Your Business Grow?
If you are growing your business, you often have to spend money before you receive it.
You might need to buy materials for a large order, increase your stock, recruit staff, or invest in a new location. The problem is that your revenue may not increase until after you have made that investment.
Revenue-based finance is a type of business funding that can help bridge that gap. Instead of always making the same fixed repayment, you can agree to repay funding as a percentage of your revenue on your card terminal receipts.
If your business has regular income, linking repayments to your receipts can make cash flow easier to manage.
What is Revenue-Based Finance?
Revenue-based finance is funding that is repaid according to the revenue your business generates.
The way repayments are calculated depends on the product.
- With Business Cash Advance, revenue-based repayments can be linked to incoming sales tracked through your bank transactions.
- With Merchant Cash Advance, repayments are linked to your card terminal receipts.
Here is a simple example.
Suppose, for example, that you agree to repay 10% of your receipts. If your business receives £50,000 in a month, £5,000 would go towards repayment. If you receive £30,000 the following month, the repayment would be £3,000.
How is it Different From a Traditional Business Loan?
With a traditional term loan, you normally agree to make a fixed payment each month for a set period.That can work well if your income is predictable. You know what you need to pay and can build it into your monthly budget.But what happens if your revenue changes?Revenue-linked funding takes a different approach.| FUNDING ALT | BANK LOAN | |
| Time to Funding | Days, sometimes hours | Weeks or months |
| Amount | £15,000 to £250,000 | £10,000 to £500,000 |
| Repayments | Flexible or Fixed | Fixed |
| Flexibility | We work around your business needs | Can only offer standard terms |
| Engagement | Online only engagement possible | Requires a lot of paperwork |
| Support | Dedicated relationship manager | Support centre |
Neither approach is automatically better. You need to look at how your business earns money and whether the repayment structure fits your cash flow.
How Can Revenue-Based Finance Help You Grow?
You can use funding to pay for growth before the extra revenue arrives.
Fulfil A Large Manufacturing Order
Imagine a manufacturing business that has secured a large order for a new product line.
The order could bring in significant revenue, but it would first need to buy materials and incur production costs before the customer pays.
A solution such as a Business Cash Advance or Merchant Cash Advance can provide the cash to get the order into production. With revenue-based repayments, you repay the funding as money comes into the business.
Expand Into Another Region
Perhaps you run a service business and have identified an opportunity in a new region.
Before you can generate the additional revenue, you may need to recruit employees, run marketing campaigns, travel to meet customers or set up a new location.
Funding can cover those initial costs while the new operation gets established.
More Stock to Support Sales
Retail and online businesses often need to buy stock before they can sell it.
If you expect demand to increase but don’t have enough working capital to build inventory, funding can help you buy what you need without using all your available cash.
The same principle applies across many sectors. If you have a clear commercial reason for the funding and established revenue coming into the business, it may be worth considering a revenue-linked structure.
Which Businesses Could Use Revenue-Based Finance?
Revenue-based finance suits businesses with established income that want to invest in growth while managing cash flow.
That can include:
- Manufacturers that need to buy materials or increase production before receiving payment.
- Retailers that need to purchase stock ahead of sales.
- Hospitality businesses with regular card takings and seasonal fluctuations.
- E-commerce businesses investing in inventory, advertising, or fulfilment.
- Service providers expanding into new locations or adding staff.
- Wholesalers and distributors buying larger stock volumes to secure supplier discounts.
- Subscription businesses with recurring monthly income funding product development or customer acquisition.
- Health and beauty businesses, such as salons, clinics, and spas, refurbishing premises or adding treatment rooms.
- Gyms and leisure operators investing in new equipment or facilities.
- Dental, veterinary, and private healthcare practices upgrading equipment or technology.
- Garages and motor trade businesses buying parts, tools, or diagnostic equipment.
- Other established SMEs with regular revenue that doesn’t arrive evenly throughout the year.
What matters is whether you have enough established revenue to support the repayment structure.
What is a Merchant Cash Advance?
A Merchant Cash Advance is a form of revenue-linked funding designed around card payments.
You receive funding upfront and repay it through an agreed proportion of your future card takings.
This can work well for businesses where a significant amount of revenue comes through card transactions, such as retailers, restaurants, and hospitality businesses.
The two terms are distinct. Revenue-based finance is the broader concept. Merchant Cash Advance is a specific type of funding based on card revenue.
At Funding Alternative, our Merchant Cash Advance is based on card payments. Our Business Cash Advance can use revenue-based repayments linked to incoming sales tracked through bank transactions or, where appropriate, fixed weekly repayments.
What Should You Consider Before Taking Revenue-Based Funding?
A flexible repayment structure can make funding easier to manage, but it does not remove the financial commitment.Before taking funding, make sure you understand:
- How much you will receive.
- The total cost of the funding.
- How repayments are calculated.
- How often repayments are collected.
- How the repayments are likely to affect your cash flow.
- What the funding will achieve for your business.
- What security you may need to provide.
It is particularly important to think about what you are using the money for.
Borrowing to fulfil a profitable order or invest in an expansion plan is very different from borrowing to cover an ongoing cash shortfall with no clear way to improve your position.
You should be able to explain what the funding will do for your business and how you expect it to be repaid.
How Funding Alternative Can Help
Funding Alternative provides flexible business funding for UK businesses.
We review your trading history, revenue, and what you need the funding for.
Our Business Cash Advance can offer revenue-based repayments based on incoming sales tracked through bank transactions, or fixed weekly repayments.
Our Merchant Cash Advance is based on card sales, with an agreed percentage taken from your daily card takings.
Both products give you options for how you repay your funding, depending on your business and how money comes in.
Is Revenue-Based Finance Right for Your Business?
Growth rarely happens in a straight line. You may have the order, the customers, or the expansion opportunity in front of you, but need funding before the revenue arrives.
The right funding structure can give you room to act without putting unnecessary pressure on your cash flow.
If you have a specific investment in mind, Funding Alternative can help you review the numbers and determine what type of funding could support it.
