What is Revenue-Based Financing (RBF)

Revenue-Based Financing is one way to finance a subscription model for product subscriptions in a product-as-a-service business model. Other options include:

• Gradual self-financing
• Sale & leaseback
• Special Purpose Vehicle (SPV)
• Bank loans or equipment leases
• Manufacturer/supplier partnerships

What is Revenue-Based Financing?

Revenue-based financing (RBF) gives you upfront capital. In return, you repay a fixed percentage of future revenue (often monthly) until you reach a cap—usually the original amount plus a multiple. Payments rise and fall with sales. No equity is sold.

How RBF Works (step by step)

• Advance approved: A funder reviews your revenue, margins, and churn, then wires the capital.
• Revenue share set: You agree to pay X% of monthly revenue (e.g., 5–10%).
• Flexible repayments: If revenue dips, you pay less. If revenue grows, you finish faster.
• Cap reached, you’re done: Repayments stop once total paid equals the agreed cap (e.g., 1.5× the advance).
• Usually non-dilutive: You keep ownership; covenants are typically lighter than bank loans.

When RBF fits

• You have steady MRR/ARR, manageable churn, and healthy gross margins.
• You need working capital for growth (marketing, onboarding, operations) without selling equity.
• You want payments that flex with sales instead of fixed installments.

Why RBF isn’t a good fit for buying the assets

Using RBF to buy the actual products (bikes, phones, machines, furniture) is usually a poor match. Durable assets earn money over several years, but RBF wants its money back much sooner—so cash goes out too fast and your monthly margin gets squeezed. There’s also a practical conflict: if you later add a classic asset lender or lessor, they’ll want to be paid first from subscription income; an RBF deal that already takes a cut of revenue can block or shrink that cheaper asset funding. Finally, RBF doesn’t scale well with fleet growth because the advance is tied to revenue, not to the resale value of the assets.

Better approaches for the assets: equipment leases, sale-and-leaseback, SPV/warehouse lines, or extended supplier terms—these match cost and tenor to the asset’s life and collateral.

Where RBF helps in a pilot (the “other parts”)

RBF can be handy for the non-asset costs that make a pilot work—short-cycle spend that turns into revenue quickly:

• Customer acquisition (CAC): ads, partnerships, launch campaigns
• Onboarding & delivery: shipping, installation, starter kits
• Refurbishment & swaps: parts and labor for early returns
• Operations & tools: support, software subscriptions, basic logistics

In short: use RBF for growth and operations, where flexible, revenue-linked repayments make sense; avoid using it for the assets themselves, which fit better with longer-term, asset-backed funding.

FAQs

Is RBF debt or equity?
Debt-like, non-dilutive, with variable repayments tied to revenue.

How big can the advance be?
Usually a function of current revenue run-rate, margins, and retention—not a per-asset borrowing base.

Can I combine RBF with asset finance?
Yes—many teams use RBF for growth costs and a lease/SPV for the assets.

What happens if revenue drops?
Your monthly payment drops too, but it will take longer to reach the cap.

Will RBF affect future fundraising?
Used for working capital, it’s generally acceptable. Just avoid structures that conflict with asset lenders’ seniority.