From managing cash flow to juggling unforeseen expenses, the financial pressures of running a small business can often feel overwhelming.
While traditional loans can certainly help keep things afloat, they often come with many strings attached—including achingly slow approval processes, sky-high eligibility requirements, and strict repayment terms that add even more stress.
But here’s the good news: There’s a faster, smarter, and simpler way forward.
Revenue-based financing (RBF) offers a game-changing alternative that gives your small business not only the capital, but also the flexibility it needs to thrive.
In this article, we’ll dive into how revenue-based financing works, what types are available, and how it stacks up against traditional loans. Plus, we’ll highlight the benefits RBF offers to small businesses looking to scale, grow, and get the funding they deserve.
What Is Revenue-Based Financing?
Revenue-based financing provides a flexible way for small businesses to access capital, without the burden of fixed monthly repayments.
While there are different types of RBF arrangements, the core idea is pretty much the same for all:
- A funder provides a lump-sum payment in exchange for a percentage of your future sales until a predetermined cap is met.
- Repayment amounts are not fixed—rather, as your revenue fluctuates from month to month or quarter to quarter, the amounts you owe are adjusted accordingly.
For these and other reasons we’ll cover later, RBF is gaining significant traction across businesses in several industries: personal, professional, and retail services; food and hospitality; trucking and logistics; and many others.
Regardless of the industry, this financing model works well for just about any growth-stage business that has moved beyond the startup phase and wishes to scale.
Meanwhile, experts agree that the global revenue-based financing market is booming. One report predicts it will reach over $86 billion by 2031 at a 61.8% annual growth rate. Another report forecasts an even faster year-over-year market growth, hitting $67.88 billion by 2029!
Either way, RBF is clearly gaining momentum as a viable financing option for SMBs. And as the market continues to soar, it’s clear that more businesses are bound to recognize the value of this adaptable, flexible funding solution.
Types of Revenue-Based Financing
While all RBF types allow businesses to access future revenue, they vary in terms of revenue benchmarks used, and how funding and repayment works.
Below, we cover the three most common options. However, keep in mind that your business may also be able to negotiate custom arrangements with RBF funders based on your specific needs.
Recurring Revenue Financing
Also known as monthly recurring revenue financing (MRR financing), this business funding method allows SMBs to secure capital based on their predictable stream of recurring monthly revenue.
This type of financing is ideal for businesses that rely on steady customer subscriptions, like SaaS companies, membership-based services like gyms or streaming platforms, and telecom or internet providers.
Since it’s tied to recurring revenue, MRR aligns with businesses’ income models and provides a stable, dilution-free option for funding.
Moreover, this type of stability can make it easier for companies to plan longer-term financial strategies and secure other financing in the future.
As more businesses shift to subscription-based models, it’s likely that recurring revenue financing will continue to be a popular solution.
Invoice Factoring
With invoice factoring, businesses essentially “sell” their unpaid invoices to a funder, in exchange for an immediate cash advance.
The funder gives you a percentage of the invoice up-front and, once your customer pays, the remaining balance—minus a fee (aka the “factoring rate”)—is returned to you.
Factoring rates usually fall between 1% and 5% of the invoice value each month. However, the exact rate can vary depending on things like the amount of the invoice and your sales volume.
Because this financing method is tied to accounts receivable, it’s ideal for businesses who struggle with cash flow due to late customer payments. Rather than waiting weeks or months for payments, invoice factoring provides funds within days—sometimes even just a few hours.
It’s also a solid option for businesses that may not qualify for traditional financing options like loans or lines of credit.
Working Capital Advance
Sometimes also referred to as a “merchant cash advance,” a working capital advance is a short-term business funding solution where the funder provides the SMB with upfront cash—the SMB then repays it through a percentage of daily, weekly, or monthly debit or credit card sales, plus a small fee.
Often used by businesses in retail or hospitality, this type of financing is ideal for those with high transaction volumes and frequent card sales, who need to cover everyday expenses like inventory, rent, and payroll.
Repayments are made automatically based on your sales, which means you’re paying as you earn. Meanwhile, repayment periods typically range from a few months to a year, making a working capital advance an effective short-term way to keep operations running smoothly during cash flow gaps.
Ultimately, a working capital advance can be a fast, flexible way to manage your business finances—regardless of the industry you’re in.
How Revenue-Based Financing Works
All RBF types follow a similar structure—with business funding provided upfront, and repayment based on a percentage of your future revenue.
Below, we dive into how each step works and how you can leverage revenue-based financing for your business’ growth.
1. Application
Applying for revenue-based financing requires sharing your business’s financial details, including revenue, credit card transactions, cash flow, growth trends, and more.
Be ready to prepare financial statements, bank records and monthly revenue reports to provide an accurate picture of your business’ financial health.
While you may also be asked for your credit score, RBF funders are generally more interested in whether your business will have consistent sales. As such, they will look at your entire application to evaluate their level of confidence in your business before they disburse the funds you request.
2. Review and Approval
The provider will then review your application to determine how much funding they can offer. The approval process typically takes a few days to a week.
After approval, you’ll receive an offer outlining RBF details like the funding amount, repayment percentage, payment structure, and interest rate.
Take time to review the offer carefully. Consider the repayment terms and ensure the financing structure aligns with your business’s cash flow patterns and growth. You may also be able to negotiate terms like the capital amount, repayment cap, and frequency.
Once you’re comfortable with the terms, you can accept the offer.
3. Receive Funding
Next, your funding is typically transferred quickly as a lump sum, giving you immediate access to the capital you need.
Now that you have the funds, use them wisely to fuel growth. Focus on areas that will give you the best return, like marketing, product development, infrastructure, equipment, or something else.
The goal is to ramp up revenue as fast as possible—which will make your repayments more manageable, and help you pay off your financing sooner.
4. Make Revenue-Based Repayments
With RBF repayments, you will pay a fixed percentage of your revenue—typically 5% to 15%—on a daily, weekly, or monthly basis. These payments are usually automated, taken directly from your business bank account.
Repayments are tied directly to your business’s performance, so they fluctuate based on your business’s revenue. During busier months, you’ll pay more; but in slower periods, your payments will be less.
This flexible repayment structure allows you to adjust payments according to your cash flow, making it easier to manage your finances and cash flow—and ultimately, financial stress.
5. Periodic Reviews
Funders may periodically review your revenue performance to ensure that your repayments are in line with your earnings.
Especially if your revenue is ever-fluctuating, it’s important to be transparent with your provider—share regular updates about your business performance, project progress, and even new contract wins.
By keeping the lines of communication open, you can build trust with funders. This ongoing relationship can serve you well if you need to secure additional financing in the future.
6. Complete Repayment
Once you’ve repaid the agreed-upon amount, your repayments stop—even if your revenue (hopefully!) continues to grow.
Just make sure to confirm with your provider that all payments have been accounted for.
An added bonus is that the RBF structure can be repeated. After the initial assessment, businesses can access financing more quickly in the future. Many companies use recurring credit to fund growth campaigns or key initiatives, helping them scale efficiently when needed.
Revenue-Based Financing Benefits
In addition to everything we’ve mentioned above, here are the main reasons why revenue-based financing has become such an attractive option for SMBs:
- No collateral required: You don’t need personal assets or guarantees to qualify for revenue-based financing.
- Quick access to capital: The RBF application and approval process is fast, with business funding typically available within days.
- No equity loss: Unlike some other alternative financing options, with RBF you keep full control of your company.
- Freedom of funds: There are no stipulations on how you can use your lump sum. Capital can be used for marketing, hiring, equipment, scaling, you name it—the aim is to support your short-term growth needs without stifling development elsewhere.
- Adaptable, flexible repayments: Repayments fluctuate based on your revenue, making it easier to manage cash flow during slower periods.
In short, revenue-based financing can help you expand your business with no fixed payments or loss of ownership. Plus, with fast capital access and adjustable terms, RBF lets you focus on scaling your business instead of worrying about debt.
Revenue-Based Financing vs Traditional Loans
Still on the fence about RBF? Weighing your options between revenue-based financing and a traditional loan?
Here’s a high-level comparison to help guide your decision:
| Traditional Loans | Revenue-Based Financing | |
| Interest rates and fees | Fixed or variable interest rates, which can accumulate over time, increasing the total repayment amount. Fees for application, origination, and late payments may also apply. | No traditional interest rates; rather, the cost you pay is a fixed percentage of revenues until a predetermined cap is reached. |
| Repayment terms | Fixed monthly repayments. Amount remains constant, regardless of your business’s revenue performance. | Flexible repayment structure adjusts based on your monthly sales. |
| Collateral and personal guarantees | Often require collateral or personal guarantees. Puts business owner’s personal assets at risk if the business fails to make repayments. | Does not typically require personal guarantees or collateral, making it a less risky option for business owners personally. |
| Speed of funding | Long, documentation-intensive process to secure business funding. May take weeks or months to receive funding, if approved. | Quick application and funding process, often completed entirely online. Businesses can access capital within days—sometimes even hours. |
| Eligibility and approval | Focuses on high credit scores, historical financials, and profitability. Tends to exclude younger businesses or those without a strong financial history. | Focuses on the company’s revenue and growth potential rather than traditional credit metrics. |
Ultimately, revenue-based financing represents a solid choice for smaller businesses seeking quick cash—without the tight strings of traditional loans.
Unlike traditional loans, RBF offers flexible repayment terms that reduce stress and risk for SMBs and their owners.
Additionally, revenue-based financing is easier to apply for with less focus on credit scores, making it more accessible and supportive of SMB growth.
Qualifying for Revenue-Based Financing
Getting approved for revenue-based financing is actually quite easy, and simpler than you probably think.
For instance, if you’re looking to secure alternative financing through Bitty, all you need is the following (all of which are completely attainable if you’re a serious business):
- A business checking account.
- Have been in business for at least six months.
- Generate at least $5,000 in monthly revenue.
- Credit score of at least 500.
From there, we aim to approve you in as little as 24 hours!
Bitty: Flexible Funding Made Easy
Looking to accelerate growth, invest in product development, improve customer acquisition, or kickstart some other business-boosting endeavor?
RBF could be the perfect short-term alternative financing solution for your small business.
With Bitty, we help you access the capital you need without the hassles of traditional funding roadblocks, allowing you to focus on what matters most: Gaining momentum, seizing new opportunities, and expanding your business.
Plus, you can depend on us for personalized support and specialized SMB funding solutions that fit your needs and current cash flow.Ready to take the next step?
Apply for revenue-based financing today and get your small business started on the path to success!
