Funding types / Revenue-based funding
Revenue-Based Funding, Explained in Plain English
A practical guide to selling a portion of future business receivables, understanding the payment mechanics, and comparing the full offer before you sign.
In plain English
Revenue-based funding, often called a merchant cash advance, is generally structured as a purchase of a portion of a business’s future receivables. A funding partner provides an agreed amount of cash in exchange for an agreed total amount of future receivables, collected according to the contract. Collection may be made through regular withdrawals or another method described in the agreement. It is not a loan, and the specific terms and collection obligations depend on the contract and the funding partner.
How it works
From apply to paid off.
01
Share basic business details
Complete one application with information about your business, revenue, time in business, and the amount and purpose of funding you are considering.
02
Review possible partner offers
Goldhour matches your business with funding partners. If an offer is available, your named specialist explains its terms and shows the offer details side by side before you decide.
03
Check the receivables purchase terms
Review the cash that lands, every fee by name, total payback, payment or collection method, estimated term, and exit terms. Read the agreement itself and ask how collections work if sales change.
04
Decide whether to accept
If you choose an offer, follow the funding partner’s signing and verification process. You are not required to accept an offer simply because you applied or reviewed it.
05
Funds and receivables are handled under the agreement
After funding, the partner collects the agreed receivables as set out in the contract. Keep the agreement and payment records, and contact your named specialist if you need help understanding the documents.
How it is priced
A partner may set an agreed purchase amount for future receivables in relation to the cash advanced. In general terms, an offer may show a factor rate multiplied by the amount provided to calculate the total amount of receivables to be collected, though offer formats and other charges can vary. Do not treat the factor rate alone as the full cost. Compare the cash that lands after any deductions, every fee by name, total payback, payment amount or collection method, estimated term, and exit terms. Use the Offer Decoder to translate the actual offer you have, then confirm the contract controls.
Reading the offer
Enter the offer into the Offer Decoder to get a plain-English breakdown. Check the cash that lands after deductions, every fee by name, the total amount of receivables to be collected, payment amount and frequency or collection method, estimated term, and exit terms. Compare those lines across offers rather than looking at one headline figure. The Decoder helps explain the document, but it does not replace the signed agreement or legal advice.
Open the Offer DecoderBest for
- Owners considering funds for a defined business need, such as inventory, equipment, repairs, or a seasonal operating expense.
- Businesses with regular receivables that can support the collection schedule described in the contract.
- Owners who want to compare the amount that lands and the full receivables commitment before deciding.
- Owners who understand that this is a purchase of future receivables, not a loan, and are comfortable reviewing the contract terms.
Not ideal when
- The business cannot manage the stated collection schedule alongside payroll, rent, suppliers, and other obligations.
- Sales are unpredictable and the agreement’s collection method could put pressure on cash flow during a slower period.
- The owner has not confirmed the total receivables commitment, deductions, fees, or exit terms in the agreement.
- A different funding structure may fit the business better, and the owner has not compared available alternatives.
What it does well
- Can provide business funds in exchange for an agreed amount of future receivables.
- Offer terms can be laid out side by side, including cash that lands, named fees, total payback, payment, term, and exit terms.
- Goldhour works with funding partners and can help explain the offer without setting the partner’s terms.
- A named Goldhour specialist stays with you before and after funding.
Trade-offs to weigh
- The total amount of future receivables collected may be greater than the cash provided, so review the full commitment rather than just the amount received.
- Regular collections can put pressure on working cash, including during a slower sales period, depending on the contract’s collection terms.
- Fees or deductions may reduce the cash that lands compared with the stated funding amount.
- The agreement’s reconciliation, renewal, default, and early payoff provisions may be limited or specific, so read and clarify them before signing.
Compared to the others
How it stacks up.
vs. Business term loan
A term loan is a debt arrangement with repayment terms. Revenue-based funding is generally structured as a purchase of future receivables. Compare legal obligations, total cost, payment mechanics, and flexibility in the actual agreements.
vs. Business line of credit
A line of credit typically lets a business draw funds up to a limit and repay amounts under its agreement. Revenue-based funding involves an agreed purchase of future receivables. Availability, collection, and cost work differently.
vs. Equipment financing
Equipment financing is commonly tied to purchasing specific equipment and may involve a lien or security interest. Revenue-based funding is based on future receivables. Compare what secures each arrangement and what happens if payments are missed.
vs. Invoice factoring
Invoice factoring generally involves selling or advancing against identified invoices. Revenue-based funding generally involves a purchase of an agreed portion or amount of future receivables. Check which receivables are covered and how collections are handled.
Ask before you sign
Six questions worth asking.
- How much cash will actually land in the business account after all deductions?
- What is the total amount of future receivables the contract requires to be collected, and what does each fee cover?
- What is the payment amount and collection frequency or method, and can it change with sales?
- Is there a reconciliation process if actual receivables differ from expectations, and how do I request it?
- What are the term, renewal, default, and early payoff or exit provisions?
- What happens if the business closes, changes payment processors, or cannot meet a scheduled collection?
Have these ready
- Recent business bank statements and revenue records.
- Basic business details, including time in business and ownership information.
- A clear estimate of the amount needed and how the funds would be used.
- Any offer or agreement already received, so the Offer Decoder can help explain its terms.
- Questions about deductions, collection mechanics, reconciliation, and exit provisions.
Questions
Is revenue-based funding a loan?
It is generally structured as a purchase of future business receivables, not a loan. The signed agreement defines the arrangement and your obligations, so read it carefully.
What is a merchant cash advance?
Merchant cash advance is a common name for a form of revenue-based funding. It generally involves a funding partner providing cash in exchange for an agreed amount of future receivables.
How are payments collected?
The collection method is set out in the partner’s agreement. It may use regular withdrawals or another method. Confirm the amount, frequency, and whether collections can change with sales before signing.
How much will I pay back?
The offer should state the total amount of future receivables to be collected and any fees or deductions. Review the cash that lands and the full total commitment. Goldhour’s Offer Decoder can help translate these lines.
Can collections change if my sales change?
That depends on the contract. Ask whether collections are fixed or tied to receivables, whether reconciliation is available, and what steps are required to request it.
Can I pay it off early?
Early payoff treatment depends on the agreement and partner. Ask for the exact exit terms and any effect on the total amount due in writing before signing.
What businesses may be a typical fit?
Owners Goldhour usually works with have been in business for 1+ year, have monthly revenue of $50K+, and credit of 550+. These are typical-fit guidelines, not automatic rejections. Other factors and partner criteria may apply.
How much funding may be available?
Funding may be available up to $2M through funding partners. Availability and terms depend on the business, partner review, and the specific offer.
Make the most of the light.
One short application. One company calls you. Every offer laid out in plain English before you sign.