Revenue-based funding gives a Redwood City, CA company a lump sum that is repaid as a fixed share of monthly revenue until a set total, the cap, is reached. Payments rise and fall with sales, which suits software and subscription companies with recurring revenue. Funding partners that review the request through Whiteside Finance set the revenue share and the cap.
Revenue-based funding is repaid as a share of monthly revenue up to a cap; the dollar cost is the cap minus the amount funded. A merchant cash advance follows card sales and is not a loan. Examples use invented figures.
How repayment follows monthly revenue
The agreement fixes two numbers: the share of each month’s revenue that goes back to the funding partner, and the cap, the total to be repaid, set as a multiple of the amount funded. Each month the company reports revenue, the share is applied, and payments stop once the cap is reached.
| Month | Revenue | Payment | Left to the cap |
|---|---|---|---|
| Month 1 | $180,000 | $10,800.00 | $151,200.00 |
| Month 2 | $165,000 | $9,900.00 | $141,300.00 |
| Month 3 | $192,000 | $11,520.00 | $129,780.00 |
| Month 4 | $150,000 | $9,000.00 | $120,780.00 |
In this example a slower month at $150,000 of revenue sends $9,000.00, and a stronger one sends more. In this example, at an even $180,000 a month, the cap is reached in 15 months.
Recurring-revenue companies and revenue-based funding
Revenue-based funding reads a company by its revenue history rather than by equipment or property, which is why subscription software and other recurring-revenue businesses look at it. A funding partner can ask for:
- Monthly recurring revenue for the past 12 to 24 months
- Cancellations, and upgrades that existing customers buy
- How much revenue depends on a handful of big accounts
- Gross margin after hosting and support costs
- Business bank statements that match the reported revenue
San Mateo County, CA software publishers counted 32,046 paid employees across 303 establishments in the 2023 March pay period (CBP, NAICS 511210). Payroll on that scale falls due on fixed dates, whatever a given month’s revenue does.
Revenue-based funding versus a merchant cash advance
The two products are built on different sales. A merchant cash advance is not a loan. It is a purchase of future card receipts: the provider collects a share of each day’s card sales until a set total is in. Revenue-based funding follows total monthly revenue, including invoices and subscriptions, and is repaid monthly up to its cap.
| Point | Revenue-based funding | Merchant cash advance |
|---|---|---|
| What it follows | Total monthly revenue | Card sales |
| How often money goes back | Monthly | Daily or weekly |
| How the cost is stated | A cap, as a multiple of the amount funded | A factor rate |
| Software company billing by invoice | Close to how its revenue arrives | Card sales may be a small share |
For the card-sales side, the merchant cash advance page works through a holdback day by day. For costs that come and go, the line of credit page and the working capital page cover the two loan options.
Total cost: the figure to compare
The dollar cost is the cap minus the amount funded: $162,000 less $120,000 is $42,000 in this example. Revenue speed changes how long that cost is spread over, not its size. In this example, a company that reports $240,000 a month reaches the cap in 12 months instead of 15, paying the same $42,000 in a shorter time, so the cost per year is higher.
Illustration only, invented figures: a 24-month term loan for the same $120,000 at 12% a year runs $5,648.82 a month and carries $15,571.68 of interest. In this example that is $26,428.32 less than the revenue-based cost, with a fixed payment whatever revenue does. The steps for checking any offer:
- Cap = amount funded × multiple.
- Dollar cost = cap − amount funded.
- Monthly payment = monthly revenue × the revenue share.
- Months to the cap = cap ÷ monthly payment.
- Line up the dollar cost and the months against a term loan or credit line quote.
To ask about any of these, call (650) 336-2048 or use the request form; other articles sit on the blog.
By Whiteside Finance · Updated
