Key Takeaways
- Factor rate: the total cost multiplier (1.15–1.45 at Bankable) applied to your advance amount
- Holdback percentage: the daily/weekly % of revenue debited for repayment (typically 6–15%)
- UCC-1: the standard public lien filing that secures revenue-based advances
- Advance vs. loan: revenue-based advances are purchases of future receivables, not debt
- Stacking: having multiple simultaneous advances — a major red flag that disqualifies new applications
Revenue-based funding has its own terminology that differs from traditional bank loan vocabulary. Understanding these terms before signing any agreement is essential for non-citizen entrepreneurs entering into revenue-based financing arrangements.
Core Revenue-Based Funding Terms
- Advance Amount
- The lump sum disbursed to your business at funding. Also called the "funded amount." Example: $100,000 advance. The advance amount is what goes into your business bank account on funding day.
- Factor Rate
- The multiplier applied to the advance amount to calculate total repayment. Formula: Total Repayment = Advance Amount × Factor Rate. Example: $100,000 × 1.25 = $125,000 total repayment. Bankable's range: 1.15–1.45. Note: factor rate is not the same as APR (Annual Percentage Rate).
- Holdback Percentage (also "Retrieval Rate")
- The daily or weekly percentage of business revenue automatically debited for repayment. Example: 10% holdback means if you deposit $5,000 on Tuesday, $500 is debited for repayment. Typical range: 6–15% of daily or weekly revenue. Lower holdback = slower repayment = same total cost but more cash flow flexibility.
- Repayment Amount
- The total amount you repay, calculated as Advance Amount × Factor Rate. This is fixed regardless of how long repayment takes — low-revenue months mean lower payments and longer repayment, but the total stays constant. Also called "payback amount."
- Revenue-Based Repayment
- A repayment structure where payments are a percentage of actual revenue, rather than a fixed monthly amount. This is the defining characteristic of revenue-based funding — payments flex with your business performance.
Legal and Security Terms
- UCC-1 Financing Statement
- A public filing in your state's UCC database that records the lender's security interest in your business assets. All revenue-based lenders file a UCC-1 when funding. It is not a judgment — it's a standard commercial security instrument discharged (removed) after repayment.
- UCC Lien Search
- A search of the UCC database to identify all existing financing statements against a business. Lenders conduct UCC lien searches before funding to see what other lenders have security positions. Multiple open UCC-1s (stacking) is a disqualifier.
- First Lien Position
- The senior security position — the first lender to file a UCC-1 against a business has first lien position. In case of default, first-lien holders are paid first. Lenders prefer first lien position and may decline if a prior lender has first position.
- Personal Guarantee
- A contractual provision making the business owner personally liable if the business cannot repay. Some revenue-based advances require personal guarantees; others don't. Review the agreement carefully.
Product and Comparison Terms
- Merchant Cash Advance (MCA)
- A revenue-based advance specifically tied to credit card processing volume. MCAs were the original "revenue-based" product but are limited to credit-card-heavy businesses. Bankable's products evaluate all revenue sources, not just card volume.
- Stacking
- Having multiple simultaneous revenue-based advances from different providers. Stacking is widely considered predatory and dangerous — multiple holdback percentages can consume 40–60% of daily revenue, creating severe cash flow problems.
- Tranche
- A portion of a larger total advance, disbursed in stages based on business milestones. Tranche funding (e.g., $150,000 total in three $50,000 tranches) reduces upfront debt while keeping future capital available.
- Renewal
- A new advance issued after significant repayment of an existing advance (typically 60–70% repaid). Renewals often come at the same or better factor rates as the original advance for businesses with good repayment history.
- Bridge Funding
- Short-term capital to cover a specific gap — between invoices, between seasons, or between equity rounds. Revenue-based advances are commonly used as bridge funding because of their speed and revenue-flexible repayment.
Comparison to Traditional Lending Terms
| Revenue-Based Term | Traditional Equivalent | Key Difference |
|---|---|---|
| Factor rate | Interest rate | Factor rate is a flat multiplier; interest accrues on remaining principal |
| Advance | Loan principal | Advance = purchase of receivables; loan = debt obligation |
| Holdback % | Monthly payment | Holdback flexes with revenue; monthly payment is fixed |
| UCC-1 | Collateral pledge | UCC-1 is a general business lien; collateral pledge is specific asset-based |
Frequently Asked Questions
Technically, no. Revenue-based advances are structured as purchases of future receivables — the funder buys a portion of your future revenue at a discount. This distinction has legal implications (different regulatory treatment from loans) but practical implications are similar: you receive capital and repay more than you received.
To calculate an approximate APR: divide the total fee (advance × factor rate − advance) by the advance, then annualize by multiplying by 12/repayment months. A $100,000 advance at 1.25 factor rate repaid in 9 months: fee = $25,000; $25,000/$100,000 = 25%; 25% × 12/9 = ~33% APR. This is higher than bank loans but faster and more accessible.
Factor rates are typically set by the lender based on risk assessment. Businesses with longer history, higher revenue, and lower existing debt may receive lower factor rates. It's always reasonable to ask whether the offered rate can be improved based on your specific business profile.
If your advance has no prepayment penalty, you can pay off the remaining balance before the holdback would naturally complete repayment. For example, if you receive a cash windfall and want to pay off the advance in full, you pay the remaining repayment amount (total factor amount minus what's already been repaid) without any additional fee.
Holdback is a percentage of actual deposits — so if you deposit $3,000 on Monday, $300 (10% holdback) is debited. If you deposit $0 on Tuesday, $0 is debited. The holdback only applies when revenue is deposited, making cash flow management predictable.
With zero revenue deposits, holdback would be zero — no repayment occurs. The advance isn't forgiven, but repayment simply pauses during the zero-revenue period. If zero-revenue persists for extended periods, the lender may contact you to discuss the situation.
Some lenders allow holdback percentage adjustments based on changed business circumstances. Contact Bankable directly if you need to discuss holdback modification. Modifications are not guaranteed but may be available for businesses facing temporary cash flow challenges.