What Is Revenue-Based Financing UK?
Brandon Conway
Business Development Executive · Jun 16, 2024 · 6 min read
Revenue-based financing (RBF) is a relatively new form of UK business lending where a company receives upfront capital in exchange for agreeing to repay a fixed percentage of its future monthly revenue until a pre-agreed total is repaid. It is particularly suited to businesses with recurring or predictable revenue but limited physical assets.
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How revenue-based financing works
The lender advances a lump sum, typically 1 to 6 times your average monthly recurring revenue. In exchange, you agree to repay a fixed percentage of your monthly revenue (typically 2% to 8%) until the total repayable amount (the advance plus a capital fee, usually 6% to 25% of the advance) is paid off. There is no fixed monthly payment: in a strong revenue month you repay more; in a weaker month, less.
RBF is popular with SaaS companies, subscription businesses, e-commerce retailers with recurring sales, and any business with predictable monthly revenue that does not want to dilute equity or offer physical collateral. The absence of a personal guarantee requirement from many RBF providers is also attractive for founder-led businesses.
Revenue-based financing vs conventional loans
The key advantage of RBF over a term loan is flexibility: repayments flex with your revenue, so a difficult month does not create the same pressure as a fixed loan payment you cannot meet. The key disadvantage is cost: the total repayable is typically higher than an equivalent term loan, and the effective APR equivalent can be significant for shorter repayment periods.
RBF is most cost-effective when the business deploys the capital to generate returns that outpace the cost of financing. A marketing investment generating 3:1 return on ad spend, for example, can easily justify an RBF cost of 10% to 20% over the repayment period. Borrowing for working capital without a clear return pathway makes the cost harder to justify.
"Revenue-based financing makes sense when you have predictable recurring revenue and a clear use of capital that generates returns. It does not make sense as a substitute for a cheaper conventional loan."
- Brandon Conway, Business Development Executive
The bottom line
Spark Finance can identify whether RBF or a conventional loan is the better structure for your situation. Start at apply.sparkfinance.co.uk.
Check your eligibilityAbout the author
Brandon Conway
Business Development Executive
Brandon is a Business Development Executive at Spark Finance with extensive experience placing asset finance and business loans for UK SMEs. He works closely with businesses that have been declined by high street banks, finding specialist lenders suited to adverse credit and complex trading profiles.
