There are plenty of benefits of using revenue-based financing for raising capital compared to traditional loans. There is flexibility in repayment as funding is dependent upon the company’s revenue. So, if a business performs better, the repayment rate increases but if the performance is down, then the repayment amount would be low too. Moreover, the approval and funding processes of revenue-based financing is typically quicker than other types of financing. And unlike traditional loans, revenue-based financing usually doesn't usually need personal guarantees or collateral. And there is no need for equity dilution. All these and more make revenue-based financing a popular option with small businesses.

Revenue-based financing can have several impacts on your credit. Since this funding is intertwined with your business’s revenue, and not personal credit, it won’t affect your personal credit score. But in case of defaults, your business’s credit profile will take the brunt of it. So, make sure you do timely payments.

Since revenue-based financing is tied to your business revenue, it means payments are adjusted based on the revenue that your business brings in. With this type of financing, if your sales drop the amount of your payment will be adjusted to reflect the change in revenue. These revenue-based payments can help you navigate those slow months of sales. However, in revenue-based financing you are still responsible for maintaining the operation of your business and making all efforts to continue making payments.

A lot of businesses prefer opting for revenue-based financing because of its flexible repayment structure and the fact that it is not based on equity. But this type of financing is best suited for businesses with fluctuating revenues. These can include seasonal businesses, e-commerce, SaaS, subscription-based businesses or startups.

This is where the flexible repayment structure of revenue-based financing comes in. Revenue-Based Financing agreements (Receivables Sale Agreements or RSAs) are repaid from an agreed percentage of your business receipts (Receivables) - and only from your business Receivables - until the agreed sale price (Amount Sold) is reached. You also have a right of true-up/reconciliation to ensure that payments are made only from Receivables. In case your revenues change, and if revenue drops and can be demonstrated to be lower, the amount of payment you will make will then adjust accordingly.