Revenue-based finance explained for card-taking businesses
How revenue-based finance (a merchant cash advance) works for cafés, shops and salons: how repayments flex with card takings, how the cost compares with a business loan, when it doesn't suit and what providers check.
Revenue-based finance gives your business a lump sum that you repay as a fixed share of your future card or online takings, so repayments rise in busy weeks and fall in quiet ones. It can suit a café, shop or salon with steady card sales and a clear, short-term use for the money, but it usually costs more than a standard business loan, and the total you repay is fixed from day one.
You may also see it called a merchant cash advance.
How does revenue-based finance work?
Every offer has three parts:
- The advance. The lump sum paid into your business account.
- The fixed fee. Agreed upfront and often shown as a "factor rate", a multiplier applied to the advance, rather than as an interest rate. The advance plus the fee is the total you repay, and it doesn't grow if repayment takes longer than expected.
- The repayment share. The percentage of your card takings the provider collects, usually daily, until the total is cleared. It is sometimes called the holdback or sweep, and is usually collected automatically.
A slow day means a smaller repayment and a busy day a larger one. That is the main difference from a term loan, where the instalment is the same whether you had a good month or a bad one.
How do repayments go up and down with sales?
A worked example, without real figures
Picture a café that takes most of its money by card and agrees an advance with a fixed fee and a set repayment share.
- In a busy summer week, takings are high, so more is collected each day and the balance falls quickly.
- In a quiet week in January, takings drop, so the daily repayments drop with them and the café keeps more of the cash it does take.
- The fee stays the same in both weeks. What changes is how long it takes to clear the total.
When we look at an application like this, we start with the card statements, not the advance on offer, and look at the pattern: how steady takings are from month to month, how deep the seasonal dip goes, and what the repayment share would leave for rent, wages and stock in the quietest month. If the quietest month only works on paper with nothing to spare, that is a warning sign, whatever the size of the advance.
What does it cost compared with a business loan?
A fixed fee is easy to see, but it isn't an annual interest rate, so you can't compare it directly with a loan's APR. If you repay quickly during a strong trading period, you pay the same fee over a shorter time, which makes the effective annual cost higher. For a business that could get a standard term loan, revenue-based finance usually costs more overall.
This kind of finance often sits outside the Financial Conduct Authority's consumer credit rules, and providers aren't required to show their costs in one standard format. That makes it more important to compare offers line by line. For each one, ask for:
- the total amount you will repay, in pounds
- the repayment share, and how often it is collected
- whether there is a minimum repayment if your takings fall or stop
- whether repaying early reduces the fee, or whether there is an early repayment charge
- whether a personal guarantee is required
- whether you have to use a particular card machine or move your card processing to get the offer
When doesn't revenue-based finance suit?
It is usually a poor fit if:
- most of your income comes from cash, bank transfers or invoices, because repayments come from card takings
- your card takings are very uneven or falling, which providers read as risk and which can stretch out repayment
- you already have an advance and are thinking of taking another to cover it, which adds a second fee on top of the first
- you need money for a long-term investment, such as premises, where a term loan or asset finance fits better
- your margins are thin and the repayment share would squeeze what you need for wages and suppliers in quiet months
What do providers check?
Checks vary between providers, but most look at:
- Time trading. A longer history gives them more data to judge.
- Card takings. How much you take by card each month and how consistent it is, often read straight from your card processing data or statements.
- Credit history. Many providers check the business and its directors, sometimes starting with a soft search.
- Existing finance. Any current advance or similar borrowing.
The size of advance offered is usually linked to your average monthly card takings. Approval and terms depend on your trading history.
What this means for your business
Revenue-based finance is a tool for a particular job: short-term funding with a clear payback, repaid from card sales that are steady enough to carry it. Used to plug a long-term gap, or stacked on other advances, it can tie up your takings for longer than planned and cost more than the alternatives.
Practical steps before you apply
- Download your last 12 months of card statements and business bank statements.
- Find your quietest month and work out what would be left after the repayment share.
- Write down exactly what the money is for and how it will pay for itself.
- Get the total repayable in pounds for each offer, and compare it with a term loan quote where one is available.
- Read the terms on minimums, early repayment, guarantees and card machine tie-ins before you sign.
Frequently asked questions
Is revenue-based finance the same as a merchant cash advance?
Broadly, yes. "Merchant cash advance" usually means repayment from card takings; "revenue-based finance" is sometimes used more widely, including online sales. Check which takings the agreement collects from.
Will applying affect my credit file?
It depends on the provider. Ask whether the first check is a soft search, which doesn't affect your credit score, and when a full search would be made.
Can I repay early to save money?
Not always. Because the fee is usually fixed upfront, repaying early may not reduce what you pay, and some providers charge for early settlement. Ask for the early repayment terms in writing.
Talk it through with us
Not sure whether revenue-based finance or a term loan fits better? We can compare options from our panel of providers and show the total cost of each in pounds. Start with our business finance page, or, if you are also reviewing what you pay to take cards, book a free card fee review or see our card machines page.
Call or WhatsApp 07777 175890.
Jos Finserv Ltd (company no. 14560046) is an independent broker. For business finance we are a credit broker, not a lender, and we may receive commission from providers. Approval and terms depend on your trading history. No obligation.
Sources
Want us to look at your own numbers?
Tell us how to reach you and we will come back with what is actually available for a business like yours. We are paid by the provider, not by you, so this costs you nothing either way.
- We read your current statement and explain it in plain terms
- No obligation, and no pressure to move if you are already well placed
- One conversation, not a sequence of calls
Prefer to work it out yourself first? Use the card fee calculator, or check whether finance is worth exploring.
