When you’re exploring capital options for your small business, traditional routes like bank loans or equity financing are often the first things that come to mind. However, these traditional models may not be what you’re looking for. If your business is seeing consistent sales and you prefer a more flexible approach that preserves your equity, revenue-based financing could be the key to getting capital built around your actual cash flow.
Key takeaways about revenue-based financing
- Revenue-based financing has two main forms in the market. It is used as a standalone financing product for SaaS and tech companies, and as a process used to calculate the remittance on a merchant cash advance (MCA).
- At Credibly, revenue-based financing is the process used to set the remittance on a Merchant Cash Advance. It consists of reviewing your actual bank statements to calculate a fixed remittance amount based on your real cash flow at the time of approval.
- Credibly operates on an ACH fixed debit structure. The remittance is a fixed daily or weekly dollar amount debited directly from the business bank account. This differs from the credit card holdback model, where the remittance fluctuates as a percentage of daily card sales.
- It is often faster and more accessible than traditional bank loans, with approvals based on your business’s cash flow and health rather than just a credit score.
- The primary benefit is cash flow alignment: your fixed daily or weekly remittance is set based on actual revenue at approval and a good-faith estimate of future revenue. Credibly’s reconciliation process later reviews your bank statements and can issue a credit (or apply the difference toward your total obligation) if you over-remitted during a slower period.
- Unlike equity financing, you retain 100% ownership of your business, making it a strategic choice for owners who want to avoid dilution.
Credibly’s founder, , says, “Revenue-based financing is designed to move at the speed of your business. It provides the growth capital you need while offering a buffer that can protect your liquidity during slower periods if needed.”
This point is precisely why we wrote this blog. In it, we will explore:
- What revenue-based financing is in the broader market
- How it works across different models, including the ACH fixed debt and credit card holdback structures used in small business MCAs
- How Credibly applies it specifically
- How it compares to traditional loans, equity financing, and lines of credit
- The core advantages and disadvantages to consider
The revenue-based financing difference
“Revenue-based financing” has picked up a few different meanings in the financing world, and the meaning shifts depending on which corner of the market you’re looking at.
In venture and SaaS circles, revenue-based financing is a standalone product. Investors provide capital to a tech company in exchange for a share of monthly recurring revenue until a set multiple is returned. It is a common fit for subscription businesses that want growth capital without giving up equity.
In small business financing, “revenue-based” usually describes a process rather than a product. It refers to how a financing provider calculates what a business remits on a merchant cash advance, using the business’s actual reported revenue as the basis.
At Credibly, revenue-based financing is the process we use to calculate the remittance on a. The remittance is fixed at an approval based on your real reported revenue and a good-faith estimate of your future revenue, and it stays fixed for the life of the agreement, though you may be eligible for a reconciliation if your actual revenue is less than projected revenue.
The MCA is the product. Revenue-based financing is how the remittance on that product gets determined. The two work together, but they are not the same thing.
This distinction matters because different providers in the small business financing market use different remittance structures, and the word “revenue-based” can describe more than one of them. The next section will walk through what the term means in the broader market, and the section after that will cover the structural differences inside small business MCAs specifically.
What is revenue-based financing?
Revenue-based financing, sometimes called royalty-based financing, is a capital structure where the amount a business remits is tied to its revenue rather than to a traditional loan schedule. In the broader market, this structure shows up in two main forms.
As a standalone product, a financing provider or investor provides upfront capital. In exchange, the business shares a fixed percentage of future revenue until the agreed cost is covered.
This model is popular with tech companies and B2B software-as-a-service (SaaS) businesses, where recurring subscription revenue makes the share easy to predict. The revenue-based financing market is , by this segment.
As a process for calculating remittance on an MCA, in small business financing, many providers use revenue data to set the remittance on a merchant cash advance. An MCA is not a loan. It is a purchase of a portion of the business’s future receivables. The “revenue-based” part refers to how the remittance on that purchase gets calculated.
With both forms, capital is tied to what the business actually earns, not to a fixed loan schedule disconnected from performance. Where they differ is in how that connection to revenue is structured, who the typical customer is, and what the relationship looks like over time.
How does revenue-based financing work?
The mechanics of revenue-based financing depend on the model and the provider. For small business financing specifically, the most important distinction is between two remittance structures used on merchant cash advances: ACH fixed debit and credit card holdback.
Both are described as “revenue-based” in different ways, but they behave very differently in practice.
ACH fixed debt vs. credit card holdback
With an ACH fixed debit, the remittance is a fixed daily or weekly dollar amount, determined at the time of funding. The financing provider reviews the business’s recent bank statements, estimates the business’ future revenue, applies a percentage to the real reported revenue, and sets a fixed dollar amount.
That amount is debited automatically from the business bank account on a daily or weekly schedule for the life of the agreement. The amount does not fluctuate with day-to-day sales.
With a credit card holdback, the remittance is a fixed percentage of daily credit and debit card sales. The dollar amount fluctuates based on how much the business processes through its card terminal that day. On a high-volume day, the remittance is larger; on a slow day, it is smaller.
Both use revenue to size the remittance. The difference is in when and how that sizing happens.
- ACH fixed debit sizes the remittance once, at approval, and keeps it fixed. The business knows the exact dollar amount that will be debited on each remittance date.
- Credit card holdback sizes the remittance continuously, every day, based on card volume. The business does not know the exact dollar amount in advance.
Neither structure is universally better. ACH fixed debit gives the business predictability and makes cash flow easier to plan. Credit card holdback gives the business a remittance that rises and falls with card volume, which matters more for merchants whose revenue runs almost entirely through card sales.
Credibly operates on the ACH fixed debit structure.
How Credibly uses revenue-based financing
Credibly uses revenue-based financing as the process for setting the remittance on a Credibly Merchant Cash Advance. The formula is straightforward:
Remittance = percentage x real reported revenue at the time of approval.
That calculation produces a fixed daily or weekly remittance amount. The remittance does not scale up or down with day-to-day sales. It is sized once, at approval, based on what the business’s actual cash flow can support, and it stays fixed for the life of the agreement.
The cost of the advance is set upfront using a factor rate rather than an interest rate. A factor rate is a fixed multiplier applied to the advance amount. For example, at a factor rate of 1.2, a $50,000 advance has a total cost of $60,000, and that total does not grow over time.
If a merchant satisfies the full obligation ahead of schedule, an Early Remittance Discount may apply.1
This approach works well for businesses with strong revenue, including those with seasonal fluctuation, because the remittance is sized to what the business can actually support at the time of approval. If revenue changes significantly after funding, two options are available.
Reconciliation (Merchant Cash Advances)
If a merchant has already made their remittances for the month and realizes their revenue for that period was slower than expected, they can contact Credibly after the fact with that month’s bank statement.
Credibly reviews that statement and applies the revenue-based financing process to determine what the correct remittance should have been, based on actual reported revenue and the percentage specified in the merchant’s agreement. If Credibly finds that there’s a difference between what was remitted and what should have been remitted, Credibly can issue a credit for that difference.
Reconciliation is retroactive and specific to Merchant Cash Advances.
Modification (Merchant Cash Advances and Working Capital Loans)
If a merchant is currently in a slow period and doesn’t believe they can cover the next remittance, they can contact Credibly before their next remittance is due and submit recent bank statements.
Credibly reviews those statements and can adjust future remittances to reflect current revenue during that period. Once sales pick back up, remittances return to the original schedule. The goal is to keep operations moving without turning a slow period into a cash flow problem.
Modification is proactive and available on both Merchant Cash Advances and Working Capital Loans.
Working with Credibly
The process a business owner can expect:
- Fast application and approval: You apply online with minimal paperwork. Approval can happen in as little as two hours, focused on overall business health and cash flow rather than credit score alone.2
- Upfront capital: Once approved, you receive a lump sum of capital—up to $600,000—which can be in your account in as little as four hours.3
- Factor-based cost: The total cost is set upfront using a factor rate. There is no compounding interest and no surprises.4
- Fixed remittance: Your remittance is a fixed daily or weekly amount, set at approval based on your actual reported revenue. You remit that amount throughout the agreement. If your cash flow changes significantly, reconciliation or modification may be available.
Revenue-based financing example
Consider a retail business owner who secures $100,000 through a Credibly Merchant Cash Advance to stock up on inventory before their busiest season.
Credibly reviews the business’s bank statements and uses the revenue-based financing process to calculate a fixed daily remittance of $143, based on the revenue the business was actually generating at the time of approval. On a high-traffic week or a slower one, that daily remittance stays the same. The consistency makes it easier to plan cash flow without surprises.
If the business hits an unexpectedly slow period, reconciliation or modification may be available depending on timing and product type.
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Access up to $600,000 in financing, in as fast as 4 hours after approval.
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Revenue-based financing vs. traditional loans
Choosing the right path for your business depends on your specific needs, your timeline, and how you prefer to manage your cash flow. While traditional bank loans are more commonly known, revenue-based financing, and the Merchant Cash Advance built on it, offers alternative business financing options for those who need capital quickly without the rigid constraints of a conventional lender.
Here is how the two options compare:
| Feature | Standard Loan | Revenue-Based Financing |
| Approval Speed | Weeks to months | As fast as 2 hours4 |
| Funding Time | Several weeks after approval | As fast as 4 hours4 |
| Payment/Remittance Structure | Fixed monthly payments | Fixed daily or weekly remittance |
| Cost Basis | Compounding interest rates | Fixed factor rate, agreed upfront3 |
| Collateral | Often requires personal or business assets | Typically unsecured; based on future receivables |
| Flexibility | Rigid; same payment regardless of sales | Fixed remittance set at approval; modification and reconciliation may be available |
| Credit Requirements | Very strict; high emphasis on credit scores | Focused on the overall cash flow and business health |
Credibly’s revenue-based financing product is a Merchant Cash Advance. Factor rates as low as 1.11.
Revenue-based financing vs equity financing
The main difference comes down to ownership versus a structured commitment. With revenue-based financing, you keep 100% of your business; you’re simply agreeing to share a small percentage of your future receivables until the cost is covered.
Equity financing, however, requires trading away a portion of your company’s ownership in exchange for capital.
For established owners who want to stay in the driver’s seat, revenue-based financing is often the more strategic fit.
Revenue-based financing vs. business line of credit
A provides a revolving resource that you can draw from as needed, typically requiring monthly interest payments on the amount used. It works well for ongoing operational gaps and variable, recurring needs.
Revenue-based financing, in the form of a Merchant Cash Advance, provides a one-time lump sum of capital. A Credibly Merchant Cash Advance comes with a fixed daily or weekly remittance set at approval, keeping the schedule predictable.
A line of credit is a stronger fit for ongoing flexibility. A Credibly Merchant Cash Advance is a stronger fit when a defined amount of capital is needed upfront and you want a remittance built around real revenue from day one. If revenue changes significantly during the agreement, modification and reconciliation options may be available through Credibly.
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Revenue-based financing for small business: advantages and disadvantages
Revenue-based financing is built to provide business owners with a flexible, fast alternative to traditional debt. The remittance structure keeps individual amounts smaller and more manageable than a conventional monthly payment.
The advantages: why businesses choose it
- Predictable cash flow: A fixed daily or weekly remittance, rather than a large monthly payment, keeps amounts manageable and predictable. If revenue changes significantly, modification and reconciliation options may be available through Credibly.
- Speed and accessibility: The data-driven application process allows for much faster approval and funding than conventional bank loans.
- No equity loss: You maintain full ownership and control of your company without diluting shares or giving up a board seat.
- Collateral-free: Most options do not require the pledging of specific physical assets or real estate.
- Simplified requirements: Approval focuses more on current cash flow and business health than on a perfect personal credit score.
The disadvantages: what to consider
- Higher relative cost: The speed and convenience often come at a higher total cost compared to long-term, secured bank debt.
- Impact on daily liquidity: Frequent remittances (daily or weekly) can affect your day-to-day operating margins.
- Fixed total cost: Because the cost is set at approval, it does not compound the way interest on a conventional loan can. It also does not decrease over time on its own. Merchants who remit their full obligation early may qualify for an Early Remittance Discount,1 though the savings ceiling is different than with an APR-based product.
- Revenue requirements: This model is only viable for businesses with consistent, existing sales; it isn’t a fit for pre-revenue startups.
Disclaimer
- Early Remittance Discount Offers are subject to all terms and conditions of the merchants’ Receivables Purchase Agreements. Discount applies to the factor portion only. Eligibility requires no Events of Default and timely remittance history. Credibly reserves the right to require wire transfer for early remittance and to verify the originating account and source of funds used for the Early Remittance Discount.
- Financing terms are based on a good-faith estimate and assume consistent monthly revenue. Actual time to satisfy the MCA may vary.
- Available on some applications only. Timing depends on your file and your bank’s processing times.
- Some products are made available through Credibly’s network of external funding partners.
- Credibly merchant cash advances and working capital loans to merchants in California are provided by Retail Capital LLC. All other Credibly products in all other jurisdictions are provided by Credibly or Arizona LLC.
- $15K+ avg. deposits for a three-month average and the most recent month, for products made available through the Credibly network of external funding partners.
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