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What does a revenue-based financing offer really cost?

Put in the advance, the repayment cap and how it is repaid: a share of monthly revenue, or equal monthly payments. See how long it takes, what is due at maturity, and the effective annual rate at your growth and at four others, next to a bank loan for the same money.

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Start from an example

Illustrations, not any lender's quote. Your offer letter has the real terms.

The offer

Advance ($)Cash you receive, after any fee taken up frontRepayment cap (×)Total repaid ÷ advance: 1.4 means $1.40 back per $1. A 10% discount is 1.11111Share of revenue (%)Of each month's revenue, until the cap is paidMaturity (months)Anything still owed is due in this month

Your revenue and the comparison

Monthly revenue ($)What the share is taken from, in the first monthMonthly growth (%)Can be negative. 3% a month is about 43% a yearBank loan rate (%)Annual rate to compare with, e.g. an SBA or bank quote

Before you sign

The fee is only part of the deal. Ask what counts as revenue, what is due if revenue stalls, whether the lender takes a lien or a warrant, which covenants apply, and what happens if you sell the company. Get two or three offers and compare them at the same growth rate.

What Lighter Capital, Capchase, Founderpath and Stripe Capital offer, the terms to read twice and when a seed round makes more sense are in our article revenue-based financing or a seed round. To see what your revenue per head and margin look like to a lender, try the revenue per employee and margin calculator.

A model, not financial advice. More free tools: biz59.net/tools.