How to use the revenue based financing repayment calculator
- Enter the cash advance and the repayment cap as a multiple, such as 1.4 times the advance. Both come from your agreement.
- Enter the share of monthly revenue that goes to repayment and your revenue in month 1, then a monthly growth rate for revenue. Use a negative rate if revenue shrinks.
- Read the number of months to repay, the cost of the advance and the effective annual rate.
- Try a slower and a faster revenue case. The table shows each month so you can see when the cap is reached.
Formula
payment in month m = min(share x revenue in month m, cap amount - repaid so far)
cap amount = advance x cap multiple
monthly rate r solves: advance = sum of payment(m) / (1 + r)^m
effective annual rate = (1 + r)^12 - 1
The monthly rate is found by bisection until the discounted payments equal the advance. The page stops after 600 months and reports that the advance is not repaid at the share and revenue entered.
An advance of $100,000 with a 1.4 times cap
The share is 8% and revenue is steady at $80,000 a month, so each payment is $6,400. The cap is $140,000, which takes 21 full payments of $6,400 ($134,400) and a final payment of $5,600, so repayment takes 22 months and costs $40,000.
The monthly rate that makes the payments worth $100,000 today is about 3.158%. Compounded over 12 months that is an effective annual rate of 45.22%, and the same monthly rate times 12 is 37.89%. If revenue instead grows 3% a month, the cap is reached in 18 months and the effective annual rate rises to 54.26%.
Why faster growth can raise the effective rate
The total you repay is fixed by the cap, so the cost in dollars does not change when revenue changes. What changes is the time. If revenue is strong, the cap is reached sooner and the same dollar cost is spread over fewer months, which means a higher yearly rate. If revenue is weak, repayment drags on and the yearly rate falls, although the lender waits longer.
What this page leaves out
Real agreements can include origination fees, a minimum monthly payment, a floor or ceiling on payments, or a payment that is reconciled against actual revenue after the month ends. Add any fee to the cap multiple to see its effect. For other ways to compare financing, see the Invoice Factoring Calculator and the IRR and NPV Calculator.
Assumptions and limits
- Revenue follows a steady monthly growth rate that you enter. Real revenue is uneven.
- Payments are made at the end of each month and the advance is received at the start of month 1.
- The cap multiple and the share are the example values in the boxes. Replace them with the terms of your agreement.
- Fees, taxes and the timing of reconciliation are not modeled. The result is for comparing scenarios, not a quote.
Frequently asked questions
How is the effective annual rate found?
It is the internal rate of return of the advance and the monthly payments. The page finds the monthly rate that makes the payments worth exactly the advance, then compounds it over 12 months.
What happens if my revenue is lower than forecast?
Each payment is a share of revenue, so lower revenue means smaller payments and more months until the cap is reached. The total you repay stays at the cap, so the effective yearly rate goes down when repayment takes longer.
Why does the page say the advance is not repaid?
If the share of revenue is so small, or revenue so low or falling, that the cap is not reached within 600 months, the page stops instead of showing a very long schedule. Raise the share or the revenue forecast.
Is this the same as a loan with an interest rate?
No. A loan has a rate and a term, while this kind of agreement has a repayment cap and payments that follow revenue. The effective rate is a way to compare the two, but the risks are different.