Revenue-Based Financing: How It Works, What It Costs, When to Use It

#What is revenue-based financing?

Revenue-based financing (RBF) is a working-capital product where the lender underwrites against business deposit volume rather than tax returns or collateral, prices the deal with a factor rate, and collects repayment as a fixed daily or weekly ACH or as a percentage holdback on incoming sales.

It sits between a conventional term loan and a true merchant cash advance. Like an MCA, it funds in 24 hours and accepts lower credit scores. Unlike an older-style MCA, the underwriting and disclosures look more like commercial lending, fixed amounts, defined terms, and (in many states) regulated disclosure forms.

#How does RBF underwriting actually work?

The underwriter pulls 4–6 months of business bank statements, runs a soft credit pull on the owner, and looks at four things:

1. 1Average monthly deposits. Most funders want $15K/month minimum; sweet spot is $30–$250K.
2. 2Deposit consistency. Twelve months of $50K beats six months of $80K and six of $20K.
3. 3NSF and overdraft history. Repeated NSFs in the last 90 days will reduce or kill the offer.
4. 4Existing debt service. Active daily ACH outflow to other funders compresses how much new capital you can support.

There is no income tax return requirement, no P&L requirement, and no collateral pledge. The personal guarantee is standard.

#How is RBF priced?

Pricing is expressed as a factor rate, a decimal multiplier on the funded amount.

• $50,000 advance × 1.30 factor = $65,000 total payback
• The $15,000 spread is the entire cost; there is no separate interest accruing on the balance
• Typical factor range in 2026: 1.20–1.49, depending on credit, term, and risk
• Origination fee is usually 0–3% deducted from the wire

The factor and the term together determine the effective APR, which is the only number that lets you compare RBF to a conventional loan. A 1.30 factor over 6 months is roughly 120% APR. The same 1.30 over 12 months is roughly 60% APR. Same dollars paid, very different APR, because APR is annualized and the payback window is different.

#How does RBF compare to an MCA and a term loan?

The line between RBF and MCA has blurred. Most modern funders use the terms interchangeably for fixed-ACH products. The pure card-holdback MCA still exists but is now a smaller share of the market.

#What does RBF cost in practice?

That 70% APR sounds high in isolation. The relevant question is whether the $24,000 cost of capital generates more than $24,000 of incremental gross profit during the 11 months it is in your business. For a seasonal inventory buy that turns 3x in 6 months, it usually does. For a working-capital top-up with no specific deployment, it usually does not.

#When does RBF make sense?

Use RBF when at least two of these are true:

• You need capital in days, not weeks
• Your FICO is below 660 or your tax returns are weak
• You have less than two years in business
• The use of funds has a 6–12 month payback (inventory, marketing sprint, equipment for a known contract)
• You cannot pledge real estate or other hard collateral

Skip RBF when:

• You qualify for a bank or SBA term loan and the use of funds has a 2–7 year horizon
• You do not have a defined deployment plan, paying 1.30 on idle cash is the most expensive money there is
• You are already carrying two or more daily-ACH advances (consolidate first)

#How is RBF disclosed and regulated?

RBF is commercial financing, so TILA does not apply. However, several states now require disclosure forms with APR or estimated APR for commercial financing transactions:

• California (SB 1235): in effect since December 2022
• New York (CFDL, 23 NYCRR 600): in effect since August 2023, transactions ≤ $2.5M
• Virginia (HB 1027): registration and disclosure for sales-based financing
• Utah, Connecticut, Georgia, Florida, Missouri, Kansas: various commercial financing disclosure regimes

The CFPB confirmed in 2023 that these state laws are not preempted by federal TILA. If you are funding in a covered state, your offer should include a standardized disclosure showing the dollar cost, APR, and payment schedule.

#What questions should you ask before signing an RBF offer?

1. 1What is the gross advance, the net to bank, and every fee deducted?
2. 2What is the total payback amount and the expected term in months?
3. 3What is the daily or weekly ACH amount?
4. 4Is there an early-payoff discount? (Usually no, but always ask.)
5. 5Are there prepayment or buyout terms?
6. 6What triggers default, and is there a cure period?
7. 7Will any UCC-1 be filed, and is it blanket or specific?

For a deeper dive on how factor rates convert to APR, see our factor rate vs APR guide. For ICG's RBF program specifically, see revenue-based funding, minimum FICO 500+, minimum revenue $15K/mo, funding in 24 hours.