You’re looking at funding options for your business, and the choice feels overwhelming.
Bank loans have been around forever, but revenue based finance has been suggested as a good option for your style of business.
Both can provide the capital you need, but they work in completely different ways.
The final choice affects how you’ll repay the money, how quickly you can access funds, and what happens if your business hits a rough patch.
Let’s break down both options so you can make the right choice for your situation.
At a Glance: The Key Differences
Bank loans give you a fixed amount of money that you then repay in set monthly instalments, regardless of how your business performs.
Revenue based finance (RBF) advances you capital in exchange for a percentage of your future revenue – so your repayments rise and fall with your actual gross monthly income.
Bank Loans
Fixed repayments, longer approval process, often require security and PGs, lower interest rates.
Revenue Based Finance
Flexible repayments, faster approval, no security needed, higher fees.
The right choice depends on your business model, cash flow patterns, and how quickly you need the money.
Revenue based finance works on a straightforward principle: you receive upfront capital and repay it as a percentage of your monthly revenue rather than fixed instalments.
This puts RBF somewhere between a bank loan and equity investment.
You’re not giving away ownership of your business like you would with venture capital, but you’re also not locked into rigid monthly payments like you are with bank loans.
Speed: When Time Matters Most
Bank Loans
Bank loans can take six to twelve weeks from application to receiving funds. Banks need to review your credit history, business accounts, cash flow projections, and require valuations if you’re offering security.
RBF
RBF providers focus on your revenue history and forecasts, rather than your credit status. Most can approve applications within a week, with funds arriving within two weeks of applying.
Some providers move even faster if your business has consistent revenue and uses integrated accounting software.
This speed difference matters when you’re securing inventory for peak season, taking advantage of supplier discounts, or grabbing business opportunities that won’t wait.
Let’s Talk!
Understanding the Costs
Bank Loan Pricing
Bank loan costs are straightforward – you’ll see an annual percentage rate (APR) covering interest and fees. Current business loan rates range from around 6% to 15% APR, depending on your credit rating and security offered.
RBF Pricing Structure
RBF pricing works differently because it’s not technically a loan.
You’re selling a portion of your future revenue at a discount. The provider might advance you £50,000 in exchange for £75,000 of future revenue, collected as a percentage of monthly sales.
This structure means RBF can be more expensive when you calculate the effective annual cost.
However, consider the flexibility this provides.
If your business has a slow month, your RBF repayment automatically reduces. With a bank loan, you still owe the same fixed amount regardless of profitability.
The key question isn’t just “which is cheaper?” but “which gives me the cash flow flexibility I need?”
How Repayments Actually Work
Fixed vs Flexible Payments
Bank loan repayments are predictable but inflexible. You’ll pay the same amount every month, whether you’ve had your best month ever or struggled to make sales. This predictability helps with budgeting but can strain cash flow during seasonal dips.
RBF repayments move with your business rhythm.
If you agree to pay 8% of monthly revenue, that percentage stays constant while the actual cash amount varies. A £20,000 revenue month means a £1,600 repayment, while a £50,000 month means £4,000.
When Repayments End
The RBF provider sets a total repayment amount when you agree the deal – often 150% to 200% of the advance. The actual percentage depends on the deal and the risk.
Once you’ve paid this total, the arrangement ends, regardless of how long it takes.
Lending Security
What Banks Require
Bank loans usually require some kind of security, especially for larger amounts or newer businesses.
This might mean a charge over business assets, property, or personal guarantees from directors. If your business can’t repay, the bank can pursue these assets or hold you personally liable.
RBF Security Requirements
RBF providers don’t usually require security because they’re buying a share of your revenue stream rather than lending money.
Your personal assets aren’t directly at risk, and you don’t need to pledge business equipment or property.
Which Option Suits Your Business?
When Bank Loans Work Best
Standard bank loans suit established businesses with steady cash flow, assets and good credit history.
If you can confidently make fixed monthly payments and want the lowest cost option, conventional lending makes sense. Manufacturing businesses, professional services with contract income, or companies making one-off equipment purchases often find bank loans suitable.
For property purchases you may want to consider a commercial mortgage. These loans are secured against the property asset, but provide competitive lending rates.
When Revenue Based Finance Makes More Sense
Revenue Based Finance (royalty financing) suits businesses with fluctuating or seasonal revenue patterns, or fast growing start-ups.
E-commerce companies, restaurants, retail businesses, and subscription services often benefit from the flexible repayment structure. You’ll need consistent revenue history – most providers want to see at least £10,000 monthly turnover for six months or more.
SaaS companies and other tech businesses often prefer RBF because it doesn’t dilute equity ownership and doesn’t require extensive financial projections that banks demand from newer business models.
Crypto-backed loans!
Getting Expert Help
Choosing between revenue based finance and bank loans isn’t always straightforward, especially when your business has unique circumstances or complex funding needs.
Professional guidance can save you time, improve your chances of approval, and often secure better terms than going direct.
Finance brokers (like us) act as intermediaries between you and lenders, with access to both bank loan providers and RBF specialists. Structured debt advisers understand the criteria different lenders use and can quickly identify which options suit your business profile.
A good broker will assess your business model, cash flow patterns, and funding requirements before recommending a solution. They can access lenders you wouldn’t find through online searches, including private funders and specialist providers.
We have access to over 250 lenders, covering all aspects of short and long term finance.
To speak with a specialist broker, please call us on 020 3951 2828.
FAQ
Revenue based finance provides upfront capital in exchange for a percentage of your future monthly revenue until a predetermined amount is repaid. Bank loans give you a fixed sum that you repay in set monthly instalments regardless of business performance.
Both offer a capital sum without diluting equity.
RBF providers can approve applications within a week and transfer funds within two weeks. Bank loans typically take 6-12 weeks from application to receiving money, as they require extensive credit checks, charges and documentation.
RBF can have a higher effective annual cost than bank loans, but you’re paying for flexibility. Your repayments automatically reduce during slower months, which can be valuable for seasonal or unpredictable businesses.
No, RBF providers don’t require traditional security like personal guarantees, property or equipment charges.
You pay a fixed percentage of monthly revenue (usually 2-20%) until you’ve repaid the total amount agreed upfront. If you receive £100,000 one month and agree to 10%, you pay £10,000 that month.
E-commerce, SaaS, restaurants, retail and subscription businesses often benefit most from RBF’s flexibility. Any business with seasonal or variable revenue patterns can find the flexible repayments helpful.
Read more: Ecommerce Funding Without Credit Checks
