Revenue-Based Financing: Repayment Caps, Real APRs, and Disclosure Rules

Revenue-based financing (RBF) gives a company cash now in return for a fixed percentage of its revenue each month, until the company has paid back a set multiple of the advance. It is aimed at businesses with recurring or repeat revenue that cannot or do not want to sell equity and have no collateral for a bank loan.

The part most term sheets bury is that the total cost is fixed while the annual rate is not. If you grow faster than you planned, you pay the same dollars over fewer months, and the effective APR goes up. This guide works through that arithmetic, shows where the product sits between a term loan and equity, and covers the state disclosure laws that now require providers to put an APR on the offer. For contracts that run for many years or never end, see our guide to royalty-based financing. For loans made to companies that already have a lead equity investor, see venture debt for startups.

How the three terms fit together

Every RBF deal has three numbers:

• The advance, often sized as a multiple of monthly or annual recurring revenue.
• The revenue share, the percentage of revenue you pay each month.
• The repayment cap, the total you will pay, expressed as a multiple of the advance.

Lighter Capital's glossary gives the standard example: a $50,000 advance with a 1.5 cap costs $25,000, and the borrower repays $75,000 in total. The cap applies only to the amount borrowed, so it works as a flat fee, and paying off early does not reduce it. What changes with your revenue is the schedule, not the total.

Providers differ in whom they lend to, and their terms change. As of September 2026:

Capchase is still named in many RBF roundups, which is why it appears here. Providers change products, so confirm that one still sells what you want before you apply. None of these pages publishes a price list. Caps and revenue shares come out of each company's underwriting, so the only way to compare offers is to ask for the cap, the share, the revenue definition, and the expected repayment period in writing.

Why faster growth raises the APR

A cap turns the cost into a fixed number of dollars. The APR is what you get when you spread those dollars over the actual time the money was outstanding, and the time depends on revenue.

Illustration: a company takes a $500,000 advance with a 1.5x cap ($750,000 total, so $250,000 of cost) and a 7% revenue share. Its revenue is $250,000 in the first month, so the first payment is $17,500. We vary the monthly revenue growth and repay until the cap is met, treating the payments as monthly cash flows and computing the annualized internal rate of return.

The dollar cost is $250,000 in every row. A company at +5% a month pays about 15 points more per year than one whose revenue is flat. If revenue shrinks, you pay a lower annual rate but stay in the deal longer.

A common shortcut says a 1.5x cap repaid in 12 months is a 50% APR. It is far higher. Paying $750,000 back in 12 equal monthly payments on a $500,000 advance is an effective rate of about 122% a year (82% nominal). Paying it over 48 equal payments is about 24%. When someone quotes a rate for an RBF deal, ask which repayment period they assumed.

The cap and the share are separate levers

Holding growth at 2% a month, the cap sets the dollars and the share sets the speed:

A lower share does not reduce the dollars you pay. It stretches them out, which lowers the APR and keeps the provider's claim on your revenue in place longer. A company planning a priced equity round within two years may prefer a higher share and a shorter deal so the claim is gone before new investors arrive. Lighter's glossary (linked above) describes the cap as a flat fee, so paying early does not shrink it.

How it compares with a term loan and with equity

Illustration: the same $500,000 as a four-year term loan at 12% has a payment of $13,167 a month and repays $632,012 in total, or 1.26 times the amount borrowed. The RBF deal above, at flat revenue, starts with a $17,500 payment and repays 1.5 times. The extra $118,000 buys three things: no collateral or guarantee at some providers, payments that fall when revenue does, and approval based on your recurring revenue rather than on assets or a credit history. Whether it is worth the price depends on how likely you are to have a bad quarter.

Direct lenders offer a cheaper route for larger, profitable companies. In the second quarter of 2026 Valuation Research put typical middle-market unitranche spreads at 4.75% to 5.50% over SOFR, which is roughly 8.6% to 9.4% all in at September's SOFR level, as our private debt guide explains. That market is built around EBITDA and covenants, so it is out of reach for a company with $3 million of revenue and no profit.

Equity has no repayment schedule but sells a share of every future outcome. The RBF illustration costs $250,000. Selling 10% of the company for the same $500,000 costs $250,000 only if the company ends up worth $2.5 million; at $20 million the 10% is worth $2 million. So RBF is cheaper than equity whenever the company is likely to be worth much more than the price of the round, provided it can carry the payments without starving growth. Our royalty-based financing guide runs that comparison at several exit values.

RBF works best when three things are true: gross margin is high enough that 5% to 10% of revenue is affordable, the money buys something with a measurable payback, and you can qualify for nothing cheaper. Our invoice factoring guide covers a related product for companies with slow-paying customers, and the small business loans guide covers bank and SBA options.

Contract terms to read before you sign

The revenue definition matters most. If the share is calculated on gross billings, you pay on refunds, shipping charges, sales tax collected, and payment-processing fees you never keep. In the illustration, if 12% of gross billings never reaches you, a 7% share of gross is really 7.95% of what you keep, and the deal repays in 32 months at 33.7% rather than in 35 months at 30.0% if the share were calculated on the 88% you retain. Ask for the definition in the contract, and ask what happens on refunds after the payment.

Other clauses to check:

• Whether the provider takes a security interest in company assets, and whether any officer signs a personal guarantee. Lighter says it requires none; other providers vary.
• Exclusivity or anti-stacking terms that bar you from taking other financing, which would block a later venture debt line or another advance.
• Reporting rights and bank account access. Providers generally need to see your bank or payment data to measure revenue, and the contract should say what else they can do with that access.
• What counts as default, and whether missing a minimum payment or changing your bank triggers an acceleration of the full cap.
• Whether the deal is booked as debt or as a sale of future revenue. That depends on how the contract is structured, so ask your accountant.

Connect your payment processor and bookkeeping system before you apply, since underwriting relies on those feeds. Clean data also lets you check the provider's monthly payment calculation.

Disclosure laws that now apply

Several states require providers of small-business financing to state a cost in APR terms, even for products that have no interest rate.

California's commercial financing disclosure law (SB 1235, signed in 2018, now Division 9.5 of the Financial Code) covers offers of $500,000 or less and excludes banks and deals secured by real property. Its regulations require an estimated APR for sales-based financing. A later law, SB 362 (Chapter 352, Statutes of 2025, effective January 1, 2026), adds that after a provider extends a specific offer, any time it states a charge, pricing metric, or financing amount for that offer during the application, it must also state the APR. It bars using "interest" or "rate" in a way that could mislead the recipient, and treats violations by licensed lenders as violations of the California Financing Law, and by others as unfair, deceptive, or abusive practices under the state's consumer financial protection law. It also says a provider is not liable simply because the actual APR differs from the estimated APR disclosed under the regulations.

New York's Commercial Finance Disclosure Law applies to offers of $2.5 million or less, under a regulation (23 NYCRR 600) that took effect February 1, 2023. Providers of sales-based financing that use the opt-in method of estimating the APR must report to the Department of Financial Services each April 30 (from 2025) a comparison of the estimated APRs they disclosed with the actual retrospective APRs on completed deals, per the DFS page for these providers. The regulation defines the retrospective APR as the actual rate once a contract is fully repaid.

Other states have similar laws. Venable's March 2026 summary lists ten with some form of disclosure requirement: California, Connecticut, Florida, Georgia, Kansas, Missouri, New York, Texas, Utah, and Virginia. Some trackers also count Louisiana, and counts change as new bills pass. Texas has a separate registration regime for sales-based financing providers and brokers under Chapter 398 of its Finance Code, and applications go through NMLS from September 1, 2026. Scope, thresholds, and exemptions differ by state, so a provider's disclosure for a Texas or Virginia business may look different from one for a California business.

What this means for a borrower: the disclosed APR is an estimate built on the provider's assumption about your future sales. Compare offers by total dollars repaid, the cap, and your own repayment-speed model, and use the APR as a cross-check. Ask which sales projection the provider used, and re-run it at your growth rate.

Where RBF fits poorly

It fits poorly when gross margins are under about 50% and the share comes out of thin profit, when revenue is lumpy enough that a fixed share cannot be predicted month to month, and when you expect a large jump in sales that the provider's model does not. It is also a weak fit if you can get a bank or SBA loan, which will cost less. RBF should not be a permanent source of funding either, since each new advance adds another claim on the same revenue.

This article is educational and does not replace advice from a lawyer or accountant who has read your term sheet.