.gif){kind=icon}
What is revenue-based financing (and should you use it)?
Startups need capital to grow, but not every founder wants to give up equity or take on rigid loan repayments. That’s where revenue-based financing (RBF) comes in.
Revenue-based financing is a form of non-dilutive funding where repayments are tied directly to your company’s future revenue.
Instead of paying fixed installments, you repay a percentage of your monthly sales. So payments flex with performance.
Also known as revenue-based loans, revenue share financing, or revenue-based funding, this alternative financing instrument is increasingly popular among SaaS startups and subscription-based businesses with predictable income streams.
RBF is already well-established in the U.S. and U.K., and it’s gaining traction in Germany and across Europe. With the global market expected to surpass $9.8 billion in 2025, revenue-based financing has become an option for startup funding and high-growth companies.
In this guide, you'll learn:
- How revenue-based financing works
- Its pros and cons compared to equity or bank loans
- When to use it, and when not to
- Who offers RBF in Europe and beyond
TL;DR
What is revenue-based financing? (Definition)
Revenue-based financing is an alternative debt financing instrument with which early-stage and growth companies (scale-ups) secure debt from investors.
This funding approach is non-dilutive, companies do not have to sell shares in exchange for raising equity capital.
Instead, RBF provides an alternative or complementary option to equity financing. It adds another layer to a company's capital structure.
How does revenue-based financing work?
In a revenue-based financing (RBF) agreement, investors provide capital upfront, and the company repays it as a fixed percentage of monthly revenue. It is typically between 5% and 15%.
These repayments continue until a repayment cap is reached, usually 1.5x to 3x the original investment.
Flexible repayment tied to performance
Unlike traditional loans, RBF has:
- No fixed interest
- No set maturity date
- No personal guarantees
Instead, repayment speed depends entirely on revenue performance:
- If revenue grows quickly → repayment finishes faster.
- If revenue slows → repayment stretches over a longer period.
This flexibility benefits both sides: founders avoid fixed debt burdens, and investors share the upside (and downside) of revenue growth.
Shared incentives, not fixed schedules
With RBF, investors are aligned with founders. Both want to see consistent, predictable revenue growth. This sets RBF apart from traditional loans or venture debt, where lenders care more about collateral and fixed repayment terms.
Note: The repayment period is not indefinite. Most RBF deals fall into two categories: Short-term: <12 months, smaller amounts and Long-term: Up to 60 months, larger tickets
Short-term revenue-based financing
- Period up to 12 months
- Financing amount up to €100,000 or 2-4 monthly revenues
- Refinance seasonal actions, events, hardware, or office equipment
- Investors are usually fintech, which provides a fully automated handling of all processes and can finance smaller funding sizes
Long-term revenue-based financing
- Period up to 60 months
- Financing amounts up to several million euros
- Refinance of all company’s expenses, such as operations, or large one-time expenses like M&A
- Investors are usually funds that are committed to long-term partnerships, including consulting, networking, and follow-up financing
Let’s illustrate that with a simple calculation.
Fuel you growth – without giving up equity
Get up to €5M in non-dilutive funding with re:cap. Calculate your funding terms and see how much growth capital you could get.
Calculate your funding termsExample for revenue-based financing for companies
The conditions:
- A company generates monthly recurring revenue (MRR) of €500,000 at the beginning of the financing.
- Now, it is in touch with an RBF investor and wants to raise €500,000.
- The company agrees with the RBF investor on a monthly revenue share of 10%.
- The cap of the repayment amount is at a maximum of €1,000,000.
Due to the steady revenue growth, the company has repaid its financing to the investor after 12 months. Revenue growth is the only criterion that determines the margin of repayment. Why?
Investors thoroughly assess a company’s financials
With revenue based financing, there are no classic repayment or interest rates. It is based only on revenue growth.
Thus, for investors it is essential to conduct a data-based analysis of the company's financial metrics.
Since the return on investment expected by investors is tied to future revenues, this assessment has to be in-depth and solid.
Investors treat revenue and the customer base as assets that need to be valued. They focus on asset-light businesses within the tech and platform environment.
For the assessment, the investor analyzes different financial KPIs. The basis is revenue, customer base, cash flow, and bank data. These KPIs are pivotal in determining the investment decision, the amount of financing, and its percentage share of revenue.
Among those metrics are:
- Monthly and annual revenue growth (MRR/ARR)
- Customer Churn Rate
- Customer Concentration
- Net Dollar Retention (NDR)
These financial metrics allow investors a better analysis of companies with recurring revenues, which are likely from the SaaS or software industry. They can make better-informed predictions about the revenue development of those companies.
Therefore, startups considering revenue-based financing should have relevant and up-to-date data available before raising capital.
Who qualifies for revenue-based financing?
Not every company is a fit for revenue-based financing (RBF).
To secure funding, you’ll need to prove that your business generates stable, recurring revenue and has the margins to sustain repayments.
Common eligibility benchmarks
- Monthly Recurring Revenue (MRR): Typically €30,000 or more
- Annual Recurring Revenue (ARR): €300,000 to €1M+
- Gross Margin: Ideally 60% or higher
- Churn: Low and improving
- Retention: Net Dollar Retention (NDR) above 100% is a plus
Why this matters: RBF investors don’t get equity or interest. They’re paid out of future revenue. So your predictability and margin profile directly influence how much you can raise and on what terms.
Ideal candidates for RBF are SaaS, subscription commerce, and platform businesses with strong customer retention and reliable MRR.
Until startups have met these three conditions, debt funding – and thus RBF – rarely makes sense or is a good option.
Revenue-based funding for startups
Due to these criteria, revenue focused financing has established itself in recent years primarily for two types of companies: startups and growth-focused companies from the tech sector.
However, this is not the only reason. For quite some time, tech startups had no access to debt financing.
While traditional banks seek tangible assets like machines or real estate and favor profitability, this was something software and SaaS companies could not provide as security.
Tech startups focus on "soft" assets like customer base and revenue. Due to the lack of (data) expertise, this kind of business model is outside the risk profile of a bank or other traditional financial institutions.
Moreover, companies in their growth phase do not solely focus on profitability.
Meanwhile, a bank's lending criteria do not consider this type of asset sufficient to raise debt. That's why classic debt financing instruments (traditional loans) are not easy accessible for startup funding.
Revenue financing is an alternative to traditional debt
For business owners and startups, the only way to get capital was to sell shares in exchange for equity – with all the negative consequences attached to it:
- In the event of an exit or IPO, investors receive part of the profits.
- Due to the dilution, new shareholders receive co-determination, voting, and control rights over the company. The founders lose influence on decisions and the direction of their own company.
- VC financing ties up the company's resources (due diligence) and the founder's time (negotiations). It incurs legal and consulting costs, and months can pass before money is in the bank account.
Revenue-based funding enables startups and scaleups to raise debt on an alternative path trough venture lending – without diluting shares and assigning new seats at the table.
When not to use revenue-based financing
While flexible and founder-friendly, RBF isn’t right for every business.
You should avoid RBF if
- You’re pre-revenue or early-stage (no predictable cash flow yet)
- Your revenue is seasonal or highly volatile
- You don’t have a product-market fit (yet)
- Your gross margins are low (e.g. physical goods with <30% margin)
- You plan to raise VC soon and want maximum short-term runway
RBF is a smart option after you’ve proven that your revenue engine works. If you’re still iterating your product or acquisition model, equity may give you more breathing room.
Remember: RBF is a debt instrument. If you can't reasonably forecast revenue, you’re taking on risk without the upside protection that equity provides.
What are the pros of revenue-based financing?
Funding based on future revenues has the great advantage that startups can tap into a new source of capital that is not based on equity and thus doesn’t affect the dilution of shares.
What are the cons of revenue-based financing?
However, revenue-based finance has not only advantages but also disadvantages. It is because not all companies and business models are eligible for it.
Real founder pain points: what RBF solves (and doesn’t)
RBF gained traction for a reason: it speaks to real frustrations founders face with traditional funding.
Common pain points RBF addresses:
- "I don’t want to give up more equity just to hire 3 sales reps."
- "VCs are dragging out due diligence for 3+ months."
- “" need €200k to scale marketing, not €2M in a priced round."
- "I want optionality, not another board seat."
But here’s what it won’t solve:
- Deep product or market fit issues
- Unclear unit economics
- Structural cash burn without a path to profitability
- Lack of revenue visibility
Think of RBF as performance-aligned funding. It gives founders more speed, less dilution, and cleaner capital. However, it assumes you’ve already built a working growth engine.
The differences between revenue-based Financing vs. debt and equity-based financing
RBF is a type of funding where a company raises capital from investors and agrees to repay it as a percentage of future revenue.
Payments fluctuate with revenue, making it flexible. There’s no loss of ownership, but costs can be higher if revenue grows quickly.
Debt-based financing involves borrowing a fixed amount of money that must be repaid with interest. Payments are usually fixed, regardless of revenue. It doesn’t dilute ownership but creates a repayment obligation, which can strain cash flow.
Equity-based Financing means raising capital by selling shares in the company. There’s no obligation to repay, but it dilutes ownership and control. Investors typically expect significant returns through company growth or an exit event (like an IPO or sale).
Key differences
- Repayment: RBF depends on revenue; debt has fixed payments; equity has no repayment.
- Ownership: RBF and debt don’t dilute ownership, while equity does.
- Risk: RBF is less risky when revenue is unpredictable, debt is risky if cash flow is tight, and equity is risky if founders lose control.
- Cost: RBF can be costly if revenue grows rapidly; debt is usually cheaper if the business is stable; equity can be costly if the company’s value increases significantly.
Revenue-Based Financing vs. Debt vs. Equity
Recurring revenue financing and revenue-based financing
Another form of revenue financing is recurring revenue financing (RRF). It is also suitable for startups and early-stage companies focussing on growth.
With RRF, companies raise debt. The financing amount and interest rate are based on the level of recurring revenues. The use cases of RBF and RRF are overlapping, only the repayment terms differ.
RRF means fixed costs in advance
The difference: The costs of RRF are fixed at the beginning of a contract and remain throughout the entire period. They are not attached to revenue growth.
Debt is usually only allocated up to a financing limit, which depends on the annual recurring revenue of a company.
Revenue-based financing is for for early-stage companies
For companies with constant and recurring revenues, revenue-based financing is a good option and an ideal complement to a traditional loan (debt financing), venture capital (equity financing), or venture debt.
The company is dedicated to its performance and lets investors participate in future revenue growth but without giving up control over its company.
Both sides, investors and companies, pursue the same goal: steady revenue growth. It helps the investors, who get a faster return on their investment, and the company, which increases its value.
For startups, this flexibility means that capital costs adapt to their growth. If future revenues don't develop as expected, repayment and fixed interest rates do not become a permanent burden.
Summary: Revenue-based financing
Revenue-based financing (RBF) is a non-dilutive funding method where companies raise capital by pledging a percentage of future revenues to investors.
Ideal for startups with recurring revenues (like SaaS businesses), RBF offers flexible repayment tied to performance, allowing companies to maintain control without selling equity.
However, RBF has challenges.
Companies need predictable revenues to attract investors, and rapid growth can increase costs due to a higher internal rate of return.
Additionally, receiving funds upfront may lead to overfunding if not immediately utilized. Despite this, RBF is a flexible alternative to traditional loans or equity financing.
Q&Q: Revenue-based financing
What is a revenue-based financing?
Revenue-based financing (RBF) is a funding method where investors provide capital in exchange for a percentage of the company’s ongoing gross revenue until a predetermined repayment amount is met.
What is the difference between revenue-based financing and equity financing?
In RBF, investors receive a percentage of revenue without taking ownership, while equity financing involves selling company shares, giving investors partial ownership and a share of future profits.
What is income based financing?
Income-based financing is a funding model where repayment amounts are tied to the company’s income, typically structured as a percentage of revenue or profit.
What is a revenue-based financing cost?
The cost of RBF is the total repayment amount, which usually includes the original investment plus a fixed multiple (e.g., 1.5x). Repayments vary based on revenue performance.
What is the accounting treatment for revenue-based financing?
RBF is recorded as a liability on the balance sheet. Repayments are treated as expenses, and the interest or return on investment is recognized over time as revenue is generated.
Fuel you growth – without giving up equity
Get up to €5M in non-dilutive funding with re:cap. Calculate your funding terms and see how much growth capital you could get.
Calculate your funding terms
