Comparison

Revenue-based financing vs term loan: the differences that decide it.

A neutral side-by-side, with the arithmetic, so you can pick the structure that fits.

✓ Checking what you qualify for does not affect your credit score.

Should you choose revenue-based financing or a term loan?

Short answer: Choose revenue-based financing if revenue is variable or you are funding growth spending such as inventory and advertising, because payments flex with sales. Choose a term loan if revenue is stable and you are funding a long-life investment, because it usually costs less and the payment is predictable.

Key facts

RBF cost: a fixed multiple of the amount
Term loan cost: interest over time
RBF payments fall when revenue falls
Term loans usually need credit, statements and security

The short version

Revenue-based financing repays as a share of revenue; a term loan repays a fixed instalment over a fixed term. One flexes with sales, the other does not.

PaymentRBF: a share of revenue. Term loan: fixed instalment.

CostRBF: a fixed multiple of the amount. Term loan: interest over time.

TermRBF: varies with revenue. Term loan: fixed months or years.

QualificationRBF: revenue and deposit history. Term loan: credit, statements, often security.

SpeedRBF: often quick. Term loan: varies, often slower.

Best forRBF: variable revenue, growth spending. Term loan: stable revenue, long-life investments.

RiskRBF: slower repayment if revenue falls. Term loan: payment does not fall with revenue.

A worked example

Illustrative arithmetic

An ecommerce brand depositing about $80,000 a month asks for $40,000 for inventory and advertising. At a 1.18 factor the payback is $47,200, a cost of $7,200. Over roughly 9 months that is about $250 per business day, or close to 7% of monthly deposits.

Total payback on the advance: $47,200.
Cost: $7,200.
Roughly $250 per business day, or about 7% of monthly deposits.

Every figure on this page is illustrative arithmetic in Canadian dollars. It is not an offer, a quote or a promise of approval.

How to decide

If revenue swings, a share-based payment is easier to live with.
If revenue is stable and you qualify, a term loan is often cheaper.
Long-life assets suit long terms.
Compare total dollars and the payment in your slowest month.

Where people go wrong

Assuming RBF is cheaper because payments are smaller
Taking a long term for a short need
Ignoring the slow-month test

The detail that usually decides it

The right choice often comes down to one number: your payment in the slowest month. Calculate it under both structures. If the fixed instalment would squeeze that month, flexibility is worth paying for. If it fits comfortably, the lower-cost structure probably wins.

In practice

In practice, many growing businesses use both. A term loan funds a long-life asset at a lower cost, while revenue-based financing funds inventory or marketing that pays back with sales. Matching each need to the structure designed for it usually costs less than forcing one structure to do everything.

Questions to ask before choosing

What would my payment be in my slowest month under each?
What is the total repaid in dollars under each?
Is there a prepayment penalty on the loan?

Bottom line

Choose the term loan when revenue is steady, you qualify and the asset is long-lived. Choose revenue-based financing when revenue swings or the spending pays back through sales.

Sources and review

Reviewed by the Merchant Fund Express team on October 12, 2026. Official pages checked as of that date.

Common questions

Does RBF ever cost more?

Often, in total dollars, than a bank term loan.

Can I prepay a term loan?

Check for prepayment penalties.

Which suits seasonal businesses?

Usually RBF.