Which is better for your business: RBF or a term loan?
Revenue-based finance suits businesses with variable or seasonal revenue that need repayments to flex with income, while term loans suit businesses with predictable cash flow that want fixed monthly payments and lower total cost. Both provide upfront capital, but they differ significantly in repayment structure, cost and flexibility.
Term loans: the traditional model
A term loan provides a fixed sum, repaid with interest over a fixed period in regular (usually monthly) instalments. The monthly payment is known from day one and does not change.
Example:
- Loan: £100,000
- Term: 36 months
- Interest rate: 9% APR
- Monthly repayment: £3,180
- Total repaid: £114,500
Term loans work well when:
- Your business has predictable, consistent monthly revenue
- You need funding for a specific purpose with a defined payback period (equipment, premises fit-out, acquisition)
- You value the certainty of knowing exactly what you owe each month
- You want to build a credit record for future borrowing
Term loans work less well when:
- Your revenue is seasonal or variable
- You are in the early stages of growth with inconsistent income
- You cannot commit to a fixed monthly repayment with confidence
Revenue-based finance: the flexible model
Revenue-based finance (RBF) provides upfront capital and takes repayment as a fixed percentage of monthly revenue. When revenue is high, repayments are higher. When revenue drops, repayments drop proportionally. There is no fixed monthly amount. UK RBF and revenue-share providers accessible via Fundably’s panel include Outfund and YouLend, alongside term lenders such as iwoca, Funding Circle and Nucleus Commercial Finance.
Example:
- Advance: £100,000
- Factor rate: 1.3× (total repayment = £130,000)
- Monthly revenue share: 8%
- If monthly revenue is £80,000 → repayment is £6,400/month → loan repaid in ~20 months
- If monthly revenue drops to £40,000 → repayment is £3,200/month → repayment extends automatically
RBF works well when:
- Your revenue is seasonal, variable or growing rapidly
- You want repayments that flex with your business performance
- You cannot commit to a fixed monthly payment with certainty
- You have recurring subscription revenue, SaaS revenue or predictable card income
- Banks and traditional lenders have declined based on inconsistent cash flow
RBF works less well when:
- Your revenue is price-sensitive and taking a percentage of every transaction affects margins
- You want to know exactly when the loan will be repaid
- Your revenue is invoice-based B2B (invoice finance may be more appropriate)
Direct cost comparison
The cost comparison depends on your actual repayment timeline.
| Term loan | Revenue-based finance | |
|---|---|---|
| Repayment structure | Fixed monthly | % of monthly revenue |
| Rate format | APR (%) | Factor rate (×) |
| Total cost known upfront? | Yes | No (depends on revenue) |
| Early repayment | Sometimes penalised | Usually reduces total cost |
| Typical cost on £100k | £10k–£25k over 2–3 years | £20k–£40k at 1.2–1.4× |
| Flexibility | Low | High |
RBF typically costs more in total than a term loan at equivalent rates, but the flexibility premium is the point.
How do you decide between RBF and a term loan?
Choose a term loan if: your revenue is consistent, predictable and sufficient to service a fixed monthly repayment. You want cost certainty and are building credit.
Choose revenue-based finance if: your revenue varies month to month, you are in a growth phase with unpredictable income or a fixed monthly commitment creates cash flow risk.
Consider both: Fundably’s 50+ lender panel includes term loan providers and RBF providers. As a commercial finance broker and NACFB member, we run one soft-credit application across both product types. The soft check does not affect your credit score and is not visible to other lenders, so you can compare offers across both product types before committing.
Frequently asked questions
What is a factor rate and how does it differ from APR?
A factor rate is a multiplier applied to the advance amount to calculate total repayment (e.g. a £100,000 advance at 1.3× = £130,000 total repayment). Unlike APR, the factor rate does not account for time: paying faster reduces total time but not the amount owed. This makes direct APR comparisons with term loans misleading.Which businesses are best suited to revenue-based finance?
RBF works best for businesses with recurring or predictable monthly revenue that varies seasonally: SaaS companies, ecommerce retailers, hospitality businesses and subscription services. Providers like Uncapped, Outfund and YouLend are well suited to these profiles. B2B invoice-based businesses may find invoice finance more appropriate.Is revenue-based finance more expensive than a term loan?
Usually yes in total cost terms. A £100,000 RBF at 1.3× costs £30,000 in fees regardless of repayment speed. A term loan at 9% APR over 3 years costs around £14,500 in interest. However, RBF's flexible repayment can preserve cash flow when revenue is variable, which has real value for growing businesses.Can I get both RBF and a term loan at the same time?
Yes. Many businesses use term loans for capital expenditure (equipment, premises fit-out) and RBF for working capital, since the different repayment structures serve different purposes. Applying through Fundably lets you compare both product types from iwoca, Funding Circle, Nucleus Commercial Finance and RBF specialists like Uncapped and Outfund in a single application.Compare RBF and term loan offers for your business on Fundably.