Revenue-based financing in Canada, explained

Revenue-based financing is funding sized against your revenue rather than against your assets or your credit history. The lender looks at what comes into the business each month and decides how much that income can comfortably support.

The name covers a few different products, which is where the confusion starts.

The three things people mean by it

Revenue-share financing. Common with software and e-commerce businesses. You receive a lump sum and repay a fixed multiple of it — say 1.1 to 1.5 times — as a percentage of each month's revenue until the total is paid. Good months repay faster; slow months repay less.

Revenue-based term funding. A lump sum repaid on a fixed schedule, where the amount you can borrow is set by your deposits rather than your balance sheet. This is how many alternative term loans in Canada are sized.

Revenue-based lines of credit. A limit you draw against, set by — and reviewed against — what goes through your account. As revenue grows, the limit can grow with it. This is the version we place: revenue-based line of credit.

How it is sized

Nearly always from your bank statements. The lender reads several months of deposits, strips out one-offs, and looks at how steady the months are.

A useful rough guide: many offers land at around one month of average deposits, give or take. How much can my business borrow explains the range and the four things that move it.

How it is priced

Revenue-share deals are usually quoted as a fixed multiple — a cap. Like a factor rate, the cost in dollars is set on day one, and the faster you repay, the higher the effective annual cost.

Term funding is quoted as a total repayment, a payment and a number of payments.

Lines of credit charge on what you have drawn, not on the limit — and some carry a fee for being open.

In every case, ask for the total in dollars on a realistic scenario. What working capital costs shows how to compare them.

Who it suits

• Businesses with steady, visible revenue and few hard assets — services, software, e-commerce, clinics, trades.
• Businesses that are profitable in the bank but not on paper, which banks often struggle to lend to.
• Owners who would rather not give up equity to raise money.
• Anyone who needs an answer faster than a bank moves.

Who it does not

• Pre-revenue businesses. There is nothing yet to size it against.
• Businesses with falling revenue. A declining trend reduces the offer, and repayment gets harder as the months get lighter.
• Very thin margins. A share of revenue comes off the top, before costs.

Revenue-based or asset-based?

If your business owns real receivables, stock or equipment, asset-based lending usually prices lower, because something secures it. It takes longer to arrange. If what you have is steady revenue and not much on the balance sheet, revenue-based is the better fit.

The honest test

Revenue-based financing is sized to what your business can carry, which makes it one of the more forgiving kinds of funding when it fits. It fits best when the money turns into more revenue — stock, a hire, a channel that works — rather than covering a shortfall that is getting wider.