Revenue-based financing (RBF) is the fastest-growing corner of small business lending, and the most misunderstood. The pitch is simple: get cash now, repay a slice of your sales until you've paid back a fixed amount. No equity, often no collateral, sometimes funded the same week.
The catch is in how the price is quoted.
How it works
A provider advances you a lump sum, say $100,000.
You agree to repay a fixed total, set by a factor rate. At 1.35, you repay $135,000.
Repayment comes out as a percentage of revenue, or as fixed daily or weekly debits, until the total is paid.
Factor rates commonly range from about 1.1x to 1.5x, depending on your revenue, time in business, industry and how fast you're expected to repay.
Why "35%" isn't the real cost
A factor rate is a flat fee, not an annual rate. The shorter the repayment, the more expensive that fee is on an annual basis, and daily repayment makes it worse, because you start returning principal the day after you receive it.
We ran the numbers on a $100,000 advance repaid in equal daily (business-day) payments:
Factor rate | Repayment period | Fee ÷ term | Effective APR |
|---|---|---|---|
1.15 | 12 months | 15% | ~28% |
1.20 | 6 months | 40% | ~75% |
1.35 | 9 months | 47% | ~84% |
1.35 | 6 months | 70% | ~126% |
The effective APR column is the honest comparison against a bank loan or an SBA loan. True revenue-share products, where payments fall when sales fall, will land somewhat lower than these figures, because a slow month stretches the term.
When it's still worth it
The money earns more than it costs, quickly. Inventory you'll sell within 60 days at a 60% gross margin can justify expensive capital. Payroll for a slow season usually can't.
Speed is the point. A supplier discount or a seasonal order that vanishes before an SBA loan closes.
You've been turned down elsewhere and the use is clearly productive.
Five questions before you sign
What is the total payback amount, in dollars?
Is repayment a true percentage of revenue, or a fixed daily debit?
Is there any discount for paying early? (Often there isn't. You owe the full factor regardless.)
Are there origination, ACH or "underwriting" fees on top?
Does the contract allow "stacking" restrictions or confessions of judgment?
Cheaper places to look first
An SBA loan, a line of credit from your bank or a CDFI (community lender) will almost always cost less if you can wait a few weeks and qualify. Use RBF as a bridge, not a foundation.
Unboring is educational content, not financial advice. APR figures are illustrative calculations for equal daily payments over roughly 21 business days a month; your actual cost depends on your contract.
