What Interest Rate Should I Expect With Revenue Based Funding?
If you're researching Revenue Based Funding and searching for an "interest rate," here's the first thing you need to know: there isn't one. Revenue Based Funding doesn't use an interest rate at all — it uses a factor rate, and understanding that difference will save you a lot of confusion (and help you avoid the brokers who count on that confusion to hide their real costs).
Factor Rate vs. Interest Rate: What's the Difference?
An interest rate is a percentage that accrues over time on a remaining balance, the way a loan amortizes at a bank. A factor rate is a flat multiplier applied once, up front. If I fund you $50,000 at a certain factor rate, you know exactly what you'll pay back from day one — it doesn't compound, and it doesn't change based on how long the money technically stays "outstanding."
Typical factor rates in Revenue Based Funding run from about 2% a month on the low end up to 5–6% a month on the higher end, depending on term and risk.
What Is a Merchant Cash Advance and How Does It Work?
Still hear this called a "merchant cash advance"? Same product, different name — if you want the fuller picture, I cover it here:
What Actually Determines Your Rate
Your rate isn't pulled out of a hat. Time in business matters — more history generally means lower risk. Industry type matters too: a restaurant, spa, or doctor's office is viewed differently than trucking or construction, where revenue is less predictable and equipment breakdowns can directly hurt cash flow.
Beyond that, it comes down to your personal credit score (generally needs to sit around 640, though I can work with scores down to 500–550 in the right situation), your average daily balance, and your term length. Shorter terms mean a lower overall cost but a higher weekly payment; longer terms spread the payment out but raise the total cost. In my space, short terms run about 3–8 months, and long terms run 10–15 months. The shorter the term, the cheaper the capital — but the higher the bite out of each payment.
A Real Example
Say I fund a business $50,000 over a 10-month term at a 40% total factor cost. That means the payback totals $70,000 — spread across roughly 40 weeks, that's about $1,750 a week.
Important: this is an illustrative example only, not a quote. Your actual term and rate depend on how you score with my underwriting process — it could end up shorter or longer, cheaper or more expensive, once we look at your specific numbers.
The Trick a Lot of Brokers Use: Holdback Percentage vs. Real Cost
Here's where a lot of merchants get misled. Competitors will often quote a "10% holdback" and let you assume that's your rate. It's not — holdback is simply the percentage of your daily or weekly revenue that gets debited to make your payment; it's not your contractual cost of capital. If your revenue drops, your holdback amount can adjust down with it, but that doesn't mean your total cost changed. Conflating the two is one of the most common ways merchants get confused about what they're actually paying.
It's also worth understanding that Revenue Based Funding is technically an advance on future receivables, not a loan in the traditional sense. Your payments apply toward the full receivables amount from day one, rather than being split between principal and interest the way a bank loan amortizes.
Weighing this against a traditional bank loan? I broke down the real trade-offs, cost, and speed differences here:
Merchant Cash Advance vs. Business Loan: Which Is Right for You?
What Pushes Your Rate Toward the High End
A few things move your risk profile — and your rate — in the wrong direction. Fraudulent or altered bank statements are an automatic decline, so always download statements directly from your bank and never edit them. More than 4–5 negative days a month also raises your risk; I tell every merchant to keep a cushion of $1,000–$1,500 in the business account that they never touch.
A history of stopped payments or defaults is the third big flag — it gets flagged industry-wide through a shared reporting system, and it's hard to overcome once it's on your file.
What an Ideal, Low-Rate Applicant Looks Like
On the flip side, businesses that land toward the 2% low end tend to have consistent monthly revenue, a healthy average daily balance relative to that revenue, more than two years in business, and credit in the 640+ range. It's not just revenue that matters to a funder — it's how much cushion you carry against that revenue day to day.
Wondering if you even need collateral to qualify in the first place? I answered that directly here:
How to Think About Rate the Right Way
Here's the mindset shift I try to walk every merchant through: the real question isn't "is this rate expensive?" It's "can this capital help me make more than it costs me?" If I can put $50,000–$150,000 to work for you and my cost of capital is, say, 4% a month, but that capital lets you grow revenue by 20–40% a month once it kicks in, the math works heavily in your favor.
It may take 90–120 days to see the results from new equipment or a marketing push, but that's exactly why term length matters. Longer terms buy you breathing room with lower payments while you wait for that growth to show up, and if you pay it off early, there are no prepayment penalties, plus the potential for real savings.
What I Need From You to Give a Real Answer
I don't like guessing, and I don't like giving vague, generic quotes. I call that "broker talk" — making up numbers and hoping they stick. I am a professional. I've been in this space for six years, and the last thing I'll ever do is guess and roll the dice when it comes to my merchants' goals and future.
Before I can tell you what to expect, I want to understand your actual use of proceeds — specifically, what the money is going toward and how it benefits your business. The more transparent you are with me about your history and your plans, the more precisely I can structure something that actually works for you, whether that's through my own funding platform or one of the other reputable partners I work with as an executive funds manager.
Buyer Beware
Not every broker in this space operates the same way. Some funders and brokers are quick to default a merchant and report them the moment things get difficult, rather than working with them. My advice: treat this like getting a second medical opinion. Before you sign with someone whose numbers you don't fully understand, or you haven't built trust with, reach out to me.
Send over your application and let me put my offer side by side with theirs and allow me to show you the savings.
