Revenue based funding: how revenue based finance works in the UK

Revenue based finance is a funding arrangement in which a provider gives a business capital today in exchange for an agreed share of its future revenue, up to a total agreed at the outset. The business does not grant security over property, does not give up equity, and does not commit to a fixed repayment schedule. It commits to a percentage of turnover, and that percentage keeps being collected until the agreed total has been reached.

The terminology in the UK market is loose. Revenue based funding, revenue based financing and revenue based lending are used more or less interchangeably by providers, all three are commonly written with a hyphen as revenue-based financing, and the label is applied to products that differ in the detail of how revenue is measured and collected. A merchant cash advance is best understood as the oldest and narrowest member of the same family, one that looks only at card payments. What unites all of them is the mechanism: a variable share of income rather than a flat instalment fixed on day one.

Two consequences follow from that mechanism, and between them they explain most of what businesses find surprising about the product. The first is that the term is not fixed. A strong trading quarter clears the balance sooner, and a quiet one stretches it out, so the finance flexes with the shape of the year rather than cutting across it. The second is that the cost is not expressed as an annual rate. It is a flat fee, quoted as a multiple of the amount advanced, agreed before the money lands and unchanged by how long repayment ends up taking.

The mechanics are consistent across most providers, even where the language on their websites differs. In practice a revenue based funding facility moves through five stages.

1. You share trading data

   Rather than a full business plan, providers ask for read-only access to the records that evidence revenue: bank statements, card acquirer or payment gateway statements, and for ecommerce brands the sales data held in the store platform or advertising accounts.

2. The provider sizes an offer

   The advance is sized against average monthly revenue and its consistency. Steady, repeatable income supports a larger figure than the same annual turnover delivered in two unpredictable spikes.

3. Terms are agreed before funds move

   You are told three numbers: the amount advanced, the flat fee or multiple that sets the total repayable, and the repayment percentage applied to revenue. The total repayable is fixed at this point.

4. Capital is released as a lump sum

   Funds arrive in the business account in a single payment. There are no restrictions of the kind attached to asset finance, so the capital can go into stock, marketing, payroll or working capital as the business decides.

5. Revenue is shared until the total is met

   The agreed percentage is collected daily, weekly or monthly depending on the provider, and continues until the fixed total has been repaid. At that point the agreement simply ends.

We cover each of these stages, including how providers reconcile the split when revenue is collected through more than one channel, in our companion guide on how revenue based financing works in detail.

Cost is quoted as a flat fee, sometimes called a factor rate or a multiple. It is a number applied to the amount advanced to give the total repayable. In the UK market that multiple commonly sits somewhere between 1.1 and 1.5, with the lower end reserved for shorter expected terms, larger advances and businesses with long, stable revenue histories.

The figure is easy to read and easy to underestimate. A multiple of 1.2 is a cost of 20 per cent of the sum advanced, but if the balance clears in nine months rather than twelve, that 20 per cent has been paid over a shorter period, and the equivalent annualised cost is materially higher than the headline suggests. This is the single most important thing to understand before signing, and it is why we insist on converting every quote into an approximate annual figure before comparing it with a business loan. Our guides on what a factor rate is and factor rate versus APR work through that conversion, and the cash advance calculator does the arithmetic for you.

Beyond the flat fee, ask specifically about arrangement or administration fees, early settlement discounts (many providers offer none, because the fee is fixed), and whether a broker commission is being added to the rate you are quoted rather than charged separately.

Providers size an advance against average monthly revenue rather than against assets, so the practical ceiling is a function of turnover. Offers in the UK market are typically expressed as a proportion of one month's revenue, and businesses with longer histories and more predictable income can generally access more. Smaller facilities of a few thousand pounds are widely available; larger ones running into six figures exist but usually require a longer trading record and revenue that can be verified through a payment provider or accounting integration.

Three factors move the number more than any others. Consistency of revenue matters more than its absolute size, because the provider is being repaid out of future trading rather than out of a balance sheet. Length of verifiable history matters, since a provider assessing three months of data will lend more cautiously than one assessing two years. And the channel through which revenue arrives matters: income that settles through a card acquirer or payment gateway is easier to observe and, where the provider integrates with that platform, easier to collect from.

Because the facility is sized against turnover, revenue based funding tends to be a poor fit for capital-intensive projects. If you need to buy a freehold or fund a multi-year build, the amount available here will rarely be enough and the cost structure will not suit the timescale.

The market has settled into three recognisable variants. They share the revenue share mechanism but differ in what counts as revenue and how the money is collected.

• Card revenue advances, better known as merchant cash advances. Repayment is taken as a holdback, commonly 5 to 20 per cent, from card takings as they settle through the card terminal or acquirer. This is the model that suits hospitality, retail and any business where the PDQ machine is the till.
• Broader revenue share facilities. Repayment is calculated against total revenue across all channels, including bank transfers, direct debits and online sales, and is usually collected by direct debit against a measured revenue figure rather than skimmed at the point of settlement.
• Recurring revenue funding. Aimed at subscription and software businesses, where the provider underwrites against contracted monthly or annual recurring revenue and advances against its predictability rather than against its volume.

The boundaries between these types blur in practice, and providers rarely use the same names for them. What we would check on any offer is a plain question: which specific income streams are counted when the repayment percentage is applied? A facility that captures all revenue behaves very differently from one that captures only card sales, particularly if a meaningful share of your income arrives by bank transfer. We work through that distinction in detail in revenue based finance versus a merchant cash advance.

Revenue based financing found its first natural market in ecommerce, and the reasons are structural rather than fashionable. Online brands hold inventory, spend on customer acquisition ahead of the sales that acquisition generates, and trade through platforms that produce clean, verifiable, real-time revenue data. That combination of a genuine working capital gap and observable income is close to ideal for the model, which is why growth capital for ecommerce brands is where most of the newer UK providers concentrate.

Subscription and software businesses use the same logic differently. Their revenue is smaller in any given month but far more predictable, and the funding is typically used to bring forward the value of contracts already signed rather than to buy stock. Predictability is the asset being financed.

Card taking businesses, from restaurants and salons to independent retailers, sit at the other end of the spectrum. Their revenue is highly seasonal, concentrated in card payments, and already flowing through a terminal that a provider can integrate with. For them the merchant cash advance version of revenue based finance remains the most accessible route, and the variable repayment is doing genuine work: a quiet January costs less to service than a busy December.

Two groups of providers operate in this space in the United Kingdom, and they approach it from different directions.

The first group grew out of the technology and ecommerce funding market. Uncapped, Wayflyer and Outfund are among the names UK businesses will encounter when researching revenue based finance for online brands, and they typically underwrite by connecting to sales, payment and advertising platforms. We name them here because they are part of the landscape a business should be aware of, not as a recommendation, and we would encourage anyone to check current terms directly rather than relying on any third party summary, including ours.

The second group comes from the merchant cash advance side and funds against card takings, often in partnership with payment providers. That is where you find companies such as YouLend, Liberis, 365 Business Finance and Capify, alongside advance products offered through payment platforms themselves. We review these individually, including YouLend and Liberis, and compare the market in our roundup of the best merchant cash advance providers in the UK.

The practical point for a business comparing options is that these two groups will quote on different data and often arrive at very different offers for the same company. If your revenue is mostly card based, the second group is likely to be more competitive. If it arrives through an online store or by bank transfer, the first group will usually see more of your business and price accordingly.

Eligibility criteria are less about the balance sheet than they are about the consistency and verifiability of trading income. Most providers are looking for a version of the following.

Credit history matters less here than in traditional lending, because the provider is underwriting the revenue stream rather than the business as a credit risk in the round. A weak credit score or a past county court judgment will not necessarily rule an application out, though it will usually push the flat fee upwards, and most providers run a soft search that leaves your business credit file unmarked at the quotation stage. Businesses with bad credit often find this is the only unsecured funding open to them, which is precisely why the cost needs scrutiny before it is accepted as a solution. It is worth knowing that repaying a revenue based facility on time does little to build business credit, because most providers do not report these agreements to the credit reference agencies in the way a term lender would.

The most common practical obstacle we see is not credit at all. It is an existing advance still being repaid, because two facilities taking a share of the same revenue quickly become unaffordable. If you want a view on eligibility against card takings specifically, our sister site sets out the merchant cash advance eligibility criteria in more detail.

The honest case for and against is short, and we would rather present it plainly than bury the second half.

Our overall view is that revenue based funding is a legitimate and sometimes excellent tool for short, revenue-generating uses of capital, and a poor one for anything else. The variable repayment is a genuine benefit rather than marketing language, but it is a benefit you pay for, and the price is real.

Most businesses researching this product are weighing it against two or three alternatives. The comparison below sets out how they differ on the points that usually decide the question.

Traditional business loans are almost always cheaper in absolute terms if the business qualifies for one, so the sensible order of enquiry is to test bank and term lending first and treat revenue based funding as the answer when speed, credit history or the absence of security rules that out. We set out the full comparison in cash advance versus business loan. Where a business invoices other businesses rather than taking payment at the point of sale, invoice finance is usually the better and cheaper structure, because the working capital is released against an invoice that is already owed rather than against revenue still to be earned, and the charge falls away as soon as that invoice is settled. Equity sits in a different category altogether: it never has to be repaid, but it is the most expensive capital of all if the company succeeds.

Largely not, and this is the point on which we would most want a business to be clear before signing. Revenue based finance and merchant cash advances provided to limited companies are commercial funding agreements that sit outside the Financial Conduct Authority consumer credit regime. That means the disclosure requirements, affordability rules, cooling-off periods and complaint routes that apply to regulated consumer credit do not automatically apply here, and in most cases the Financial Ombudsman Service will not be available if a dispute arises.

There are exceptions worth knowing. A sole trader or small partnership borrowing below the relevant threshold can fall within the Consumer Credit Act, which brings a regulated relationship and its protections. Many providers are also authorised by the Financial Conduct Authority for other activities, such as payment services or consumer credit broking, and it is easy to read an authorisation statement as covering the product in front of you when it does not. Checking the Financial Services Register tells you what a firm is actually authorised to do.

The practical consequence is that the contract is doing all the work. Read what happens if revenue falls away entirely, whether a personal guarantee is required, how the provider defines revenue for the purpose of the split, and what constitutes a default. We are not a substitute for legal or accountancy advice, and on a facility of any size we would take both.

Revenue based funding suits a fairly specific profile: a trading business with consistent, verifiable revenue, a short-term need for capital that will itself generate revenue, and either no access to cheaper lending or no time to wait for it. Ecommerce brands funding stock ahead of a peak, hospitality businesses covering a refit before the season, and subscription companies bringing forward contracted income are all recognisable and reasonable uses of working capital.

It suits others much less well. If the capital is filling a structural gap between costs and income, the revenue share will make that gap worse rather than better. If the project runs for years rather than months, the cost structure is wrong. And if the business qualifies for a bank facility, the arithmetic almost always favours taking it.

Our recommendation is straightforward. Get the total repayable and the repayment percentage in writing, convert the flat fee into an approximate annual cost so it can be compared with anything else on the table, model what the revenue share does to your cash flow in your two quietest months rather than your average one, and only then decide. If the numbers still work under that test, revenue based finance is doing exactly what it was designed to do.