What is revenue-based financing?

Revenue-based financing is a way for companies to secure growth capital similar to an equity investment but without any dilution or loss of control. A company agrees to pay a small portion of future monthly revenues to an investor instead of selling an ownership stake in return for cash. In fact, revenue-based financing is typically used to replace, or even complement, an equity investment because it offers the patience, flexibility, and agility of equity but does not require a valuation exercise, governance involvement, dilution, or a future liquidity event. High-tech enterprises and other businesses we work with see great benefits from revenue-based financing that supports their growth while allowing them to maintain control of the business and keep the value they create.

How does revenue-based financing work?
Revenue-based financing is typically structured with a multi-year repayment term in which the company pays a fixed percentage (usually 1% to 3%) of the revenues generated each month to their investor. To retire a revenue-based financing investment, a company typically makes these monthly payments until a pre-defined return multiple, internal rate of return, or date is reached, at which point the repayment obligation terminates. Unlike some other approaches to growth financing, revenue-based financing solutions typically don’t have any other fees, warrants, or hidden costs involved. Because payments are tied directly to revenues, the investment is very transparent; companies get a clear and accurate picture of their total cost of capital up front.
Why would a company want to consider revenue-based financing instead of traditional debt?
Traditional debt or loan structures can play an important role in supporting a company’s working capital needs, but they are often misaligned with the longer-term time horizons required to grow a business over many years. In addition to requiring personal guarantees, traditional debt generally involves fixed payment requirements and rigid financial covenants that are often incompatible with the contours of most growth-focused companies’ trajectories. In contrast, revenue-based financing solutions offer greater flexibility, more patience and a repayment framework tied to revenues. Moreover, you’re generally not required to maintain strict financial ratios, adhere to pre-set financial parameters, or pay facility fees on undrawn capital. As a business, you have significantly more agility.
How does revenue financing work?
Revenue-based financing is a way that firms can raise capital by pledging a percentage of future ongoing revenues in exchange for money invested. A portion of revenues will be paid to investors at a pre-established percentage until a certain multiple of the original investment has been repaid.
Is revenue-based financing debt or equity?
Revenue-based financing is often considered a hybrid of equity and debt financing, which makes it particularly popular with startups, technology companies, and SaaS (software as a service) businesses.
How much Revenue Based Financing can you secure?

Finance providers will look at your recurring revenue to determine how much they’re willing to lend you. Most set maximum loan amounts up to a third of the company’s annual recurring revenue (ARR) or four to seven times their monthly recurring revenue (MRR). At Uncapped, we loan between $10k – $5m. Repayment fees are usually between 6-12% of revenue, based on whether you plan to invest the funds in predictable revenue-generating activities like advertising or higher-risk activities like hiring.