How revenue-based financing works: a fixed total, paid as a share of revenue
- A provider gives you a lump sum.
- It sets a repayment cap, a multiple of the amount. $100,000 at a 1.2 cap means $120,000 to pay back.
- You pay a set share of each month's revenue until the cap is reached.
Payments rise and fall with revenue, so there is often no fixed end date. You give up no ownership. It looks a lot like a merchant cash advance; the main differences are usually monthly payments based on total revenue, not daily debits from card sales.
True cost: the cap fixes the dollars, and how fast you pay sets the APR
| Monthly revenue | Monthly payment | Months to cap | Total cost | Estimated APR |
|---|---|---|---|---|
| $100,000 | $10,000 | 12 | $20,000 | About 35% |
| $50,000 | $5,000 | 24 | $20,000 | About 18% |
The dollar cost is the same either way: $20,000. Growing fast makes the estimated APR higher, not lower. A higher cap scales the cost: at 2.0, the same $100,000 costs $100,000.
Pros and cons: payments that flex with revenue, at a fixed and sometimes high cost
Pros
- Payments shrink in slow months.
- No ownership given up.
- Monthly payments instead of daily debits.
Cons
- Caps up to 3.0 make it expensive.
- Needs real revenue; one provider requires $500,000 a year.
- No discount for growing fast; the total is fixed.
When revenue-based financing fits, and when it doesn't
It fits when
- Steady, growing revenue and a use that pays back fast, like marketing that already works.
- You want payments to drop in a slow month.
Look elsewhere when
- Pre-revenue businesses.
- When a term loan or line of credit is available at a lower total cost.
Red flags: high caps, fixed minimums and fixed debits labeled as revenue share
Watch out
A minimum payment that applies even when revenue falls, which removes the main benefit.
A fixed daily or weekly debit described as a revenue share.
A cap near 3.0 without a clear reason.
State rules: Louisiana and others require disclosures on revenue-based deals
Louisiana has required a written disclosure of terms on revenue-based financing since Aug 1, 2025. Other state disclosure laws, including New York's and California's, cover sales-based deals too.
New Jersey has no commercial financing disclosure law yet. Bill S1760 was introduced on Jan 13, 2026 and sits in committee. See our state disclosure law lookup and the New Jersey MCA law guide.
This is general information, not legal advice, as of Oct 20, 2026.
Alternatives to revenue-based financing
- Line of credit: pay only for what you draw.
- Term loan: fixed payments, often a lower total cost.
- Merchant cash advance: similar idea, usually daily debits and higher cost.