Revenue-based finance describes funding whose collections or payments are linked to an agreed measure of revenue. The precise agreement matters: eligible sales, costs and payment conditions can differ.
PDQ Funding helps businesses explore loans and merchant cash advances. This guide explains the sales-linked concept and the questions to ask, without assuming every revenue-based product has the same terms.
How revenue-linked funding works
A provider assesses the business and proposed funding, then sets out the amount available, cost and collection mechanism. An agreement may use a share of qualifying receipts rather than a conventional fixed instalment.
Define revenue carefully. Gross orders, net settlements, card receipts and all business turnover are different measures. Refunds, taxes, fees and marketplace deductions can affect the cash retained even where the contract uses a gross-sales figure.
Revenue-based finance and merchant cash advances
A merchant cash advance is one form of sales-linked business funding. Other arrangements marketed as revenue-based finance can use different legal structures, payment rules or channels. Do not treat the label as a complete product definition.
A provider may assess specific platforms or receipts. Ordinary bank transfers, future bookings and unpaid invoices are not automatically eligible. Confirm what records and channels the actual product accepts.
Our advance versus loan guide compares the main structures. The British Business Bank advance guide provides independent background.
Collections can vary, but obligations remain
Where a fixed share of qualifying receipts is collected, the amount can change as those receipts rise and fall. That does not guarantee the retained cash will cover every bill. Wages, rent and other costs can remain steady during weaker sales.
Check minimum payments, reconciliation, repayment deadlines and conditions affecting payment-provider changes. Different agreements can impose different requirements.
For example, PayPal’s UK Working Capital guidance specifies a minimum repayment every 90 days. This illustrates why sales-linked funding should not automatically be described as having no minimum commitment; it is not a PDQ product or partnership claim.
Understand the funding cost
Separate the funding fee or pricing calculation from the percentage used for collections. A lower collection rate does not establish a lower total cost. Ask what reaches the bank and what total must be paid or collected.
Check whether early settlement changes the financing cost. A fixed fee does not necessarily reduce like interest on a conventional loan. Model the cash impact alongside a quotation for any suitable alternative.
Assess the investment and personal exposure
Prepare a budget for stock, equipment or the improvement being funded. Allow for delays before extra receipts arrive, then forecast after operating costs, tax and current finance.
Revenue-linked funding is not automatically equity investment. It may avoid selling shares while still creating substantial contractual obligations. Check security and guarantees; unsecured funding may involve personal liability through a guarantee.
It is not inherently cheaper than equity, suitable for every start-up or free of personal guarantees. Compare the actual proposal and consider independent advice before signing.
Eligibility and preparing an enquiry
Providers may review trading history, receipts, financial records, credit information, sector and existing commitments. Requirements vary; a projected growth rate does not guarantee acceptance.
- Recent accounts and business bank statements.
- Sales and settlement reports reconciled to bank receipts.
- Refunds, reserves and platform deductions where relevant.
- Current finance and its payment obligations.
- A costed purpose and cash forecast.
For online retail, see ecommerce business funding. For pricing comparisons, read advance costs and offers.
Frequently asked questions
Does revenue-based finance always have no fixed payments?
No. Check the product’s minimum payments, reconciliation rules, deadlines and other conditions. The marketing label does not define every obligation.
Is the collection rate the cost of funding?
No. It describes the collection mechanism. The funding fee or other pricing calculation determines cost.
Do I have to sell shares?
Not necessarily. Sales-linked funding and equity investment are different structures, but avoiding share dilution does not remove contractual obligations.
Can a new business qualify without sales?
A business without trading receipts needs a different assessment. Projected sales are not the same as an established qualifying revenue record.
Discuss your business funding requirements
Complete the online enquiry form or call 01246 233108. Explain the business, purpose and amount required so the next steps reflect your circumstances.
PDQ Funding is a broker, not a lender. We do not charge for using our brokerage service and receive lender commission following a successful introduction. There is no obligation to accept an offer.