Know the Figures

Revenue-Based Financing Cost

What revenue-based financing really costs a year, given how fast your revenue grows.

Replaces: Provider dashboards that show only the repayment cap

How to use it

Enter the amount advanced, the repayment cap, the share of revenue that goes to repayment, and your revenue and its monthly growth. The calculator follows the payments month by month until the cap is repaid, then finds the interest rate that fits the cash you received against those payments.

Where the number comes from

  • Total repaid is the amount advanced times the cap multiple. Cash received is the amount minus any fees deducted up front.
  • Each month’s payment is the revenue share times that month’s revenue; the last payment is only what is left of the cap.
  • Revenue grows (or shrinks) by the same percentage every month, starting from the current figure.
  • The effective APR is the monthly rate at which the present value of every payment equals the cash received, multiplied by 12. It is a simple annual rate, the same basis as the loan calculator on this site, not a compounded one.
  • If the cap is not reached within 120 months, the calculation stops and treats the remaining balance as due in month 120.

What goes wrong

The part most calculators leave out.

  • The APR depends entirely on the growth rate you enter. Revenue rarely grows at a steady percentage, so treat the result as the cost under that one path, and try a slower and a faster one.
  • Seasonal revenue changes the timing of payments, and so the rate, even when the yearly total is the same. A steady growth rate smooths that away.
  • Some agreements set a minimum monthly payment or an end date by which the cap must be repaid. Either can make the real cost higher than shown when revenue disappoints.
  • The figure is a simple annual rate. Compounded, a cap repaid in months has a noticeably higher effective annual rate, so compare offers on the same basis.
  • Warrants, equity kickers or fees charged later (renewal, platform or reporting fees) are costs too, and none are in this figure.

A 1.4× cap repaid in 18 months

A business takes 200,000 with a 1.4× cap, so it repays 280,000, by sending 8% of revenue. Revenue is 150,000 a month and growing 3% a month, so the first payment is 12,000 and they grow from there. The cap is repaid in 18 months, and the cost is 80,000. Solve for the rate that fits 200,000 received against those payments and it is about 42% a year. Had revenue grown faster, the same 80,000 would be paid sooner, and the annual rate would be higher, not lower.

Questions

Why does the APR of revenue-based financing depend on growth?
Because the total you repay is fixed by the cap, but the time you take does not. Revenue that grows quickly pays the cap off sooner, and the same cost over a shorter time is a higher annual rate. Slower growth stretches the term and lowers the rate, though the total owed is the same.
How is revenue-based financing different from a loan?
A loan charges interest on the balance over a fixed term, so paying it off sooner costs less. Revenue-based financing fixes the total up front as a multiple of the advance and lets the term float with your revenue. Paying faster does not save money; it only raises the annual rate.
What happens if revenue falls?
Payments fall with it, because they are a share of revenue, so the term stretches. The cap is still owed in full. Some agreements also have a minimum payment or an end date at which the remaining balance becomes due, which this calculator models only as a balance due at month 120.
Is this the same as the APR a provider discloses?
It is the same idea, but regulated APR rules differ by jurisdiction and many revenue-based providers are not required to disclose one at all. Use this figure to compare offers on a consistent basis.
Does anything I type get sent anywhere?
No. The whole calculation runs in your browser. Nothing is sent to us or logged, and there is no account to create. Your browser keeps the figures with this tab’s history so that Back and Reload bring them back, and Reset clears them.

Last updated .

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