Revenue Based Finance (RBF)
A type of loan where a company receives a lump sum payment in return for a monthly revenue share
RBF is a type of financing that allows a company to borrow money. However, the payback—rather than being a fixed monthly amount—will depend on the company revenue. The company agrees to pay down a fixed % of their monthly revenues until the loan and the originating fee are both repaid.
For example, a company borrows $100,000 and agrees to pay back 15% of their monthly revenues until the total amount paid back is $110,000. If a company grows quickly, the loan is repaid very fast and turns out to be expensive. If the company revenues shrink, then the loan repayment is lengthened and the loan is “cheaper”. Note that in the latter case there could be a maximum loan duration in the contact to protect the lender, so eventually the company will have to pay off the loan (usually within 18-24 months).