Revenue-Based Financing: A Guide to Funding Growth
Thu | November 2024
Small businesses like yours are the backbone of the American economy and the cornerstone of the American Dream. According to the Small Business Administration (SBA), there are 33.2 million small businesses in the United States, so your work is vital to our communities. Yet, many small businesses face challenges staying afloat, especially when access to funding is limited.
If you're a small business owner, securing capital is crucial—whether you're just getting started, navigating a rough patch, or planning to expand. Unfortunately, traditional bank loans often aren't an option for many entrepreneurs, particularly for underserved groups. In 2022, less than 1% of venture investment dollars went to African American business owners, and only 2% went to Latino-owned businesses, according to the U.S. Department of Commerce.
This is where revenue-based financing (RBF) comes in—a flexible, nontraditional funding solution designed for businesses like yours. RBF allows you to access the capital you need without giving up ownership or requiring perfect credit.
Let's explore how RBF works and how it can fuel your business growth.
What is Revenue-Based Financing?
Revenue-based financing (RBF) is a nontraditional funding solution where you repay investors with a fixed percentage of your future revenue. Unlike traditional loans or venture capital (VC), RBF doesn't require you to give up equity, issue new shares, or use assets as collateral.
This flexible approach is designed for small and mid-sized businesses that need capital quickly without sacrificing ownership or control. Whether you want to grow, cover operational costs, or navigate a financial challenge, RBF offers a solution tailored to your needs.
Let's dive into how RBF works and why it could be the perfect funding solution for your business.
How Does Revenue-Based Financing Work?
RBF works similarly to a startup loan but offers significantly more flexibility. Here's how it works:
Capital is Provided Upfront: A funder provides the amount your business needs. This could be based on your recent revenue performance, typically averaging the past three months.
Repayments Adjust to Your Revenue: Instead of rigid monthly payments, you repay through small daily or weekly amounts based on a percentage of your gross revenue. Payments naturally fluctuate with your revenue, easing the strain during slower months and helping you manage cash flow.
Transparent Cost of Capital: You agree on a factor rate upfront, ensuring you know the total repayment amount. For example, borrowing $10,000 at a 1.25 factor rate means you'll repay $12,500. You have complete visibility from the start with no hidden fees or surprises.
Early Payoff Flexibility: If your revenue increases, you can repay faster, often with discounts for early payment.
This structure lets you focus on growth without the pressure of fixed monthly obligations or the risk of using personal assets as collateral.
Understanding RBF Terms
RBF repayment terms are designed to be adaptable, offering relief when revenue is slow and scalability when revenue increases. Here's a breakdown of the key terms:
Repayment Schedule: Based on daily or weekly payments tied to gross revenue.
Qualifying Amount: Typically, you can receive 80–120% of your average monthly revenue.
Revenue Adjustment: Payments automatically scale with your revenue, providing breathing room during slower periods.
Example of RBF in Action:
Let’s say your business secures $10,000 in RBF funding with a 1.25 factor rate. This means your total repayment will be $12,500. Here’s how payments might look over three months:
Month | Gross Revenue | Monthly Payback Amount | Daily Payments (20 business days) |
Month 1 | $10,000 | $1,000 | $50 |
Month 2 | $ 5,000 | $500 | $25 |
Month 3 | $40,000 | $4,000 | $200 |
Once you’ve repaid the total amount, the payments stop—whether that takes a few months or up to a year. This flexibility allows you to focus on what matters most: growing your business.
5 Benefits of Revenue-Based Financing
Revenue-based financing (RBF) offers numerous benefits for small and mid-sized businesses. Flexible payments and easier approvals are among the most sought-after advantages. Here’s how RBF can help your business grow:
1. Flexible, Manageable Payments
When your revenue fluctuates, being locked into high monthly payments can put your business at risk. RBF allows you to make flexible payments based on your monthly gross revenue, helping you maintain cash flow during slower months. This flexibility makes it ideal for startups and businesses with seasonal or unpredictable income.
2. Easier to Get Approved
Unlike traditional bank loans, which often involve lengthy applications and in-person meetings, many RBF providers, like One Park Financial, offer a quick and easy process.
For example, here’s how the RBF approval process works at One Park Financial:
Fill Out the Online Pre qualification Form: Start by completing a simple online form. To prequalify, your business must meet a few basic requirements, including, time in business (business operating for at least 3 months), and monthly revenue (a minimum of $7,500 in monthly revenue).
Speak with a Funding Specialist: After submitting the form and meeting the basic requirements, a funding specialist will contact you to review your application and explore funding options tailored to your business needs.
Submit Required Documentation: Provide 3 months of business bank statements and sign an application to move forward with funding.
Receive Your Offer: Once approved, you’ll receive a funding offer. In many cases, the funds can be deposited into your account as soon as the same or next business day.
During the form submission, you’ll also need to provide key details such as your industry, how much capital you’re seeking, and your revenue from the previous month. By focusing on businesses with steady revenue and at least a few months of operation, RBF ensures fast, reliable funding for businesses ready to grow.
3. Maintain Control and Equity
With RBF, you keep full control of your business. Unlike venture capital, where investors may gain equity and decision-making power, RBF ensures that your business remains yours. You’ll never face the risk of being overruled or voted out by investors.
4. No Personal Risk
Traditional loans often require personal assets, like your home or car, as collateral. With RBF, there’s no need to put your personal or business assets on the line. This means you can secure the funding you need to grow without risking it all.
“The fact is that one of the earliest lessons I learned in business was that balance sheets and income statements are fiction; cash flow is reality.” — Chris Chocola
RBF provides a reliable way to maintain cash flow, invest in your business, and scale effectively.
Now let’s take a look at who are good candidates for RBF.
Who are Good Candidates for Revenue-Based Financing?
More than 33 million small businesses are in the United States, and many need financing to start or scale effectively. Unfortunately, this isn’t possible for many companies without the right funding. In fact, according to SCORE, 82% of small businesses fail due to a lack of funding.
Minority-owned businesses often face even more significant challenges in securing funding, making RBF an excellent option for them. However, RBF can also benefit any business owner struggling to get a bank loan, avoiding venture capital, or needing quick access to capital without waiting months for approval.
Here are some key criteria that make a business a good candidate for RBF:
At least three months in business.
Minimum monthly gross revenue of $7,500.
A credit score of 500 or higher.
Other factors that can strengthen your eligibility include a recurring revenue stream (e.g., subscriptions), consistent revenue history, and an established business plan. Pre-revenue startups are typically not a good fit for RBF.
Industries Best Suited for RBF
Specific industries are particularly well-suited for RBF, such as:
Professional services
Food and restaurant businesses
Home services
E-commerce and consumer goods
Tech startups
However, many industries can benefit from revenue-based financing if the business meets the necessary criteria. If your business matches these qualifications, RBF could be the funding solution you’ve been looking for. Let’s explore how to get started.
How to Get Started with RBF
Luckily it’s a lot easier to get started with revenue-based financing than with other types of financing. In fact, with companies like One Park Financial, it’s a simple four-step process.
1. Gather Your Documentation
Valid Photo ID
Business bank statements
Some funders may request additional documents, but the requirements are minimal compared to bank loans.
2. Pre-Qualify in Minutes
Unlike bank loans and other types of funding, this takes minutes, not weeks or months, to apply for and can allow companies to take advantage of time-sensitive growth opportunities.
3. Personalized Funding Solutions
Small business experts help guide you and advise you every step of the way so you get the right funding and the right payback terms so your business can grow with ease.
4. Get Funded and Start Growing
You don’t wait months only to get turned down. With RBF, you’ll know if you’re approved usually within hours; if you are, you’ll have capital in your hands within days.
At One Park Financial, our prequalification process usually takes less than 2 minutes, and many businesses have funding in just days. RBF can propel your business to the next level, which in turn contributes to your local community and the economy.
Fuel Your Business’s Future with RBF
Revenue-Based Financing isn’t just another funding option—it’s your opportunity to grow your business without giving up control. With its flexibility and ease of access, RBF is designed to help you maintain cash flow, expand confidently, and achieve your goals on your terms.
Don’t let funding challenges hold you back. Take control of your business’s future by contacting One Park Financial today—your success starts here.
Disclaimer: The content of this post has been prepared for informational purposes only. It is not intended to provide and should not be relied on for tax, legal, or accounting advice. Consult with your tax, legal, and accounting advisor before engaging in any transaction.