Two structures for the same money
You ask for $100,000. The answer can come back two ways.
| Term loan | Revenue-based financing | |
|---|---|---|
| Structure | Loan | Purchase of future sales |
| Cost quoted as | Interest rate or factor rate | Factor rate |
| Total cost | Set by the rate and the term | Fixed dollar amount, set up front |
| Payments | Fixed amount | Share of sales |
| End date | Set | Estimated |
| Early payoff | Kapitus states no prepayment penalty | May not reduce cost |
Revenue-based financing is also called a merchant cash advance, or MCA. Several state disclosure laws call it sales-based financing. You will see all three names for this one structure.
How to tell which one you are holding
Read the agreement, not the email.
- What it calls itself. A loan agreement says loan. A revenue-based agreement says it is a purchase of future sales or receivables.
- Whether there is an end date. A loan has a set term. Revenue-based financing has an estimated one.
- What happens when sales drop. A loan payment stays the same. A revenue-based payment is meant to adjust.
Then compare both on the same two numbers: the total you will repay and the APR.
How revenue-based financing works
- A funder advances you a lump sum.
- You agree to a total payback, set by a factor rate.
- The funder collects a share of your sales, by ACH, until the payback is met.
Because collection follows sales, the payback period is an estimate. Strong months shorten it. Slow months stretch it.
What it costs
The cost is a fixed dollar amount, agreed up front.
Advance × factor rate = total payback.
| Advance | Factor rate | Total payback | Cost of financing |
|---|---|---|---|
| $45,000 | 1.15 | $51,750 | $6,750 |
| $100,000 | 1.20 | $120,000 | $20,000 |
| $100,000 | 1.30 | $130,000 | $30,000 |
| $100,000 | 1.40 | $140,000 | $40,000 |
The first row is the example Kapitus publishes. The rest are arithmetic.
The same cost, as a yearly rate
A factor rate ignores time. APR does not. The faster you repay a fixed cost, the higher the APR.
$100,000 at a 1.30 factor rate, repaid in equal weekly payments:
| Payback period | Weekly payment | Approximate APR |
|---|---|---|
| 6 months | $5,000 | 107% |
| 9 months | $3,333 | 72% |
| 12 months | $2,500 | 54% |
| 18 months | $1,667 | 36% |
Fees taken out of your advance push the APR higher. Our guide to factor rate vs APR has the full table and the method.
Paying early does not shrink a fixed fee unless your agreement includes a discount. See early payoff discounts.
The risks, stated plainly
Kapitus lists these on its own product page, and we agree with all of them:
- It can cost more than traditional financing. Often a lot more than a bank loan.
- Payments come out of revenue. That leaves less working capital week to week.
- Slow sales stretch the payback. You owe the same total either way.
- It only pays off if the money earns more than it costs. Use it for something with a return you can estimate.
When it fits
- You need funds in days, not weeks.
- Your sales are steady enough to carry frequent payments.
- The money goes toward something that produces revenue: inventory, a marketing push, equipment, a large order.
- You can clear the cost with room to spare. If $100,000 costs $30,000, the use should return well above $30,000.
When it does not
- You are covering losses. Financing a shortfall at this cost makes the shortfall bigger.
- You qualify for something cheaper. A term loan, a line of credit, or an SBA loan will usually cost less.
- You already have several advances. Stacking payments is how businesses get into trouble.
Your right to see the cost
Ten states had commercial financing disclosure laws as of March 2026: California, Connecticut, Florida, Georgia, Kansas, Missouri, New York, Texas, Utah, and Virginia. California requires providers to state the price as an APR.
Wherever you are, ask for three numbers before you sign: the total payback, every fee, and the APR or estimated APR.
How to apply
- Fill out our short form.
- Complete the lender’s application. Kapitus says it can take as little as 10 minutes.
- Upload 3 to 6 months of business bank statements.
- Talk through terms with a financing specialist.
- Sign and receive funds.
Sources
- Kapitus: Revenue-Based Financing, checked October 9, 2026
- Venable LLP: State Commercial Financing Disclosure Laws, March 2026