Revenue-based financing and term loans can both put working capital in your account quickly. The biggest difference is how you pay it back, and that difference matters a lot depending on how steady your revenue is.
How Revenue-Based Financing Works
With revenue-based financing, you receive capital upfront and repay it through payments tied to your business revenue. Instead of focusing heavily on credit score or collateral, approval is based mainly on your sales history and bank deposits. The total amount you'll repay is agreed on upfront.
It's often a good fit for businesses that:
- Have strong, consistent sales but limited credit history
- Need funding quickly
- Don't have collateral to pledge
How a Term Loan Works
A term loan gives you a lump sum that you repay in fixed installments over a set period. The payment stays the same regardless of how your month went, which makes budgeting simple. Term loans usually look more closely at credit and time in business, and they often cost less over time for businesses that qualify.
Side by Side
- Approval based on: Revenue-based financing looks mainly at sales and bank deposits. A term loan weighs credit, time in business and revenue.
- Repayment: Revenue-based financing is tied to revenue. A term loan is fixed installments.
- Speed: Revenue-based financing is often very fast. A term loan is fast to moderate.
- Cost: Revenue-based financing is usually higher. A term loan is usually lower for qualified borrowers.
- Collateral: Revenue-based financing is typically not required. A term loan depends on the program.
How to Compare the Cost Fairly
Because these products are priced differently, don't just compare a rate to a rate. Ask every funding source for two numbers: the total amount you'll pay back and the payment amount and frequency. Total payback minus the amount funded is your true cost. Then check whether that payment fits comfortably in your normal monthly cash flow, including slow months.
Which One Should You Choose?
If you qualify for a term loan and your timeline allows it, it's usually the lower-cost option. If your credit is still building, you need funds fast, or you want a structure built around your sales, revenue-based financing can be the more practical choice. Some businesses start with revenue-based financing, build a track record, and move into lower-cost term loans later.
The Bottom Line
Both options are tools. The right one is the one whose payment fits your cash flow and whose total cost makes sense for what the money will do for your business.
Want to see both options for your business?
Apply once and compare what you qualify for. No hard credit pull and no obligation.