What is revenue-based financing?
Revenue-based financing, also called a merchant cash advance, gives a business capital up front in exchange for a share of its future sales. Repayment is taken as a set percentage of each sale, so it rises when sales are high and falls when they are low.
The way it works:
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The offer is pre-approved on the platform's data. Merchants do not have to apply for a cash advance, they simply accept one that is offered to them.
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Merchant chooses terms and accepts the offer. For example, a merchant can take 10,000 EUR, with a repayment of 10% from the monthly revenue.
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Funds are paid out to the merchant, usually the same day.
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Merchants repay with a fixed percentage of sales on the platform. In our example, it would mean that a merchant recording monthly revenue of 20,000 EUR, would pay back 2,000 EUR each month until the cash advance is fully repaid. If in one of the months merchants’ revenue suddenly drops to 5,000 EUR, repayment lowers to 500 EUR.
How is revenue-based financing different from a loan?
Both a traditional loan and revenue-based financing are designed to give a merchant access to capital, but for many merchants, revenue-based financing is a far better fit.
Five advantages set revenue-based financing ahead:
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Fast and simple funding
Revenue-based financing runs on the live platform's data, so the partner underwrites the merchant ahead of time and sends a pre-approved offer. Where a bank needs an application and weeks to decide, finmid sends a ready to accept offer and funds in days. Learn how finmid built 10-minute payouts.
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Flexible repayments
A traditional loan is a fixed obligation which merchant pays back in equal monthly payments. Revenue-based financing adapts to the needs and situation of a merchant, when sales drop, so does the payment amount.
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Transparent fees
A loan charges interest on the balance still owed, so the cost grows the longer it runs. With revenue-based financing, merchants pay back a fixed amount agreed at the start, which does not change.
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Usable for any business need
Bank lending can be tied to a specific asset or a stated purpose. Revenue-based financing allows for capital to go to wherever the merchant needs it, from stock to equipment.
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No collateral
A bank usually asks for a collateral to back a loan, like property or equipment the merchant could lose in case of failed payments. Revenue-based financing is backed by future sales of the merchant.
Who benefits from revenue-based financing the most?
As a merchant, what do you do if your kitchen equipment breaks down in the middle of a slow season? What if a global event slows tourism just when you expect to be busy?
Since revenue-based financing means that repayments follow sales, it works best for merchants with seasonal or uneven sales, or in industries where costs can often arrive way ahead of revenue to cover them.
Examples from the industries that benefit from revenue-based financing the most:
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Hospitality and tourism
A hotel usually experiences volatile demand, that might vary due to the season or global events, but employees have to receive their salaries regardless, long before guests arrive to pay for it.
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Retail and e-commerce
Dates like Black Friday or Christmas holidays usually mean a great spike in sales. For merchants it means that the stock has to be bought weeks before any of that revenue lands.
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Food and beverage
In an industry with thin margins and fierce competition, such unexpected cost as a sudden fallacy of a kitchen equipment can put restaurant out of business months ahead of a busy season that would have easily paid for it.
These are the merchants banks tend to turn away, treating uneven sales and a short track record as a risk rather than a normal part of their business. These are merchants that revenue-based financing can save in situations nobody else could.
Alternatives to revenue-based financing
Revenue-based financing is finmid's Cash Advance, which gives smaller merchants pre-approved advances of up to €1 million, repaid over up to 12 months as a share of sales. It is built for speed and flexibility.
Some merchants need more than that. When the amount is larger or the repayment period longer, finmid offers two other options:
Term loan: Pre-approved loans up to €5 million over up to 12 months, repaid as a share of sales or in fixed instalments, for more established merchants that value predictability and control.
Business loan: Pre-approved loans up to €5 million over up to five years, with fixed or flexible repayments, for merchants with large, long-term capital needs.
Because all three run on one integration, a platform can match the product to each merchant rather than offer everyone the same option.
Overview: finmid Capital products
| Product | Cash Advance | Term Loan | Business Loan |
|---|---|---|---|
| Max funding amount | €1M | €5M | €5M |
| Max term | 12 months | 12 months | 5 years |
| Repayment structure | Flexible, based on revenue | Fixed, based on a predictable schedule | Flexible or fixed |
| Typical use case | A restaurant needs to purchase inventory or renovate its terrace before the busy season, repaying flexibly from daily sales | An e-commerce merchant finances a bulk inventory order or marketing campaign, choosing predictable monthly repayments to better plan margins and cash flow | A vacation rental operator invests in acquiring additional properties to expand their portfolio ahead of the high season, requiring long-term funding with higher limits and multi-year repayment terms |
Cash Advance
Term Loan
Business Loan
The takeaway for platforms
Most merchants on any given platform face rejections of banks and other lenders due to the specifics of their industries that they do not always have full control over. Platforms have live and accurate data that unlocks revenue-based financing for its merchants, which in turn stay on the platform longer, grow faster and stay afloat in times when unexpected costs hit the hardest.
Curious to see how embedded lending could work for your platform? Book a demo.
finmid is the embedded lending infrastructure powering platform growth. With its API, finmid enables platforms to launch tailored financing products for their business customers at scale. Across industries, borders, and business models, finmid drives revenue, improves retention, and fuels core business growth. finmid is trusted by Europe’s most ambitious platforms, including Wolt, Delivery Hero, Just Eat Takeaway, Glovo, and FREENOW. Learn more at finmid.com.
