When revenue based financing makes sense

Revenue based financing is not a cheap product and nobody honest will tell you it is. It is fast, it does not care much about your credit file, and it costs multiples of what a bank charges. Whether that is a good trade or a bad one is not a matter of opinion. It is arithmetic, and you can do it in about two minutes.

What you are actually buying

A revenue based advance is not a loan with an interest rate. You sell an agreed amount of your future receipts at a discount, and you repay it out of the deposits you are already making — automatically, daily or weekly, until the fixed amount is delivered.

Three consequences follow from that structure, and they are the whole product:

• The cost is fixed on day one. It is expressed as a factor, not a rate. A 1.35 factor on $30,000 means you repay $40,500. It does not compound and it does not grow if the term runs long.
• Paying it off early saves you less than you would expect. On a term loan, early payoff kills future interest. Here the total was set at signing, so speed buys you a clean book and access to more capital — not a discount. Ask what an early payoff is actually worth before you plan around one.
• It is repaid out of daily cash, not out of profit. This is the part that hurts people. A payment that is comfortable on paper across a month can be brutal across a slow week.

The one test

Everything else is noise. The question is: does the dollar you borrow bring back more than it costs, inside the window you have to repay it?

Run it with real numbers. Say you take $30,000 at a 1.35 factor over nine months. The capital costs you $10,500. So the thing you spend it on has to generate more than $10,500 in additional gross profit — not revenue, gross profit — within roughly nine months. If it does, you keep the difference and you were right. If it does not, you have bought yourself a $4,500 monthly payment and a slower version of the same problem.

Most bad outcomes in this product are not caused by the cost. They are caused by people skipping this step.

Where the arithmetic works

These all share one feature: the money turns back into money on a clock shorter than the payback period.

• Inventory and materials. You buy at cost and sell at margin. If you clear 40 points and turn the stock twice inside the term, $30,000 of inventory does not have to work very hard to beat $10,500.
• Payroll on work you have already won. The contract exists. The crew finishes it. Somebody is already obligated to pay you. You are buying time, not risk.
• Getting a truck or a machine back in service. Equipment sitting in the yard earns nothing and still costs you. A $9,000 repair that puts a billing asset back on the road next week is usually the easiest version of this maths there is.
• Taking on a job you would otherwise turn down. If the contract covers the cost of the capital and leaves margin, the alternative was not "cheaper money." The alternative was not getting the job.
• Marketing you can actually measure. If you know your cost per lead and your close rate and your average ticket, this is a spreadsheet. If you do not know those three numbers, it is a guess, and guesses do not belong on expensive money.
• Replacing costlier capital. A genuine gain, as long as the new number really is lower. Compare total dollars repaid and days outstanding, not payment size.

Where it does not

• Buying equipment outright. A machine you will run for five years should be paid for over five years. Financing it over nine months is a self-inflicted wound, and equipment finance exists for exactly this at a fraction of the cost.
• A shortfall with no plan behind it. If next month looks like this month, a daily payment does not close the gap, it widens it. This is the single most common way this product hurts people.
• Anything that does not return cash. A remodel, a wrap, a nicer truck. Reasonable things to want. Bad things to buy with short money.
• Servicing what you already borrowed. That is not a gap, it is a direction, and more capital points it the same way.

The comparison nobody runs correctly

People compare the monthly payment. The monthly payment is the least informative number in the deal. Compare total dollars and time outstanding:

Assumptions, so you can check us. SBA 7(a) at 13.25%, the current maximum for loans of $50,000 or less at a 6.75% prime rate, amortized over ten years, plus a 2% guarantee fee on the guaranteed portion. Advance at a 1.35 factor over nine months. Illustrative only, not an offer, and your actual numbers come from underwriting in writing.

The advance costs less in total dollars and vastly more per month. That is the entire trade: you are buying a shorter, heavier obligation instead of a longer, lighter one. Whether that is smart depends on whether your cash flow can carry the weekly weight, and on whether the SBA loan was ever actually available to you. For a lot of businesses it is not — which is a different article.

When speed is the return

There is one case where the cost comparison misses the point entirely. If a job has to be bid on Thursday, a bank decision that arrives in six weeks is not expensive money, it is no money. The relevant comparison is not "advance versus loan." It is "advance versus not taking the work."

That is a real and defensible reason to use this product. It is also the reason most often used as an excuse. Be honest with yourself about which one you are doing.

What it takes to qualify

Working capital at Kaiba is approved on the money moving through your account, not on a credit file you already know is ugly. The floor is a 500 credit score, three months in business, and $4,000 a month in average deposits, with no more than ten days a month below zero and no more than ten bounced payments. Amounts run $5,000 to $500,000 over three to twelve months, with no money down and nothing pledged as collateral.

The whole file is one application and your last three months of business bank statements — four in California. A person reads it the same business day, and funds land in 24 to 48 hours after signing. There is no fee to apply.