Planning Pays Off: 5 Strategies to Get the Most Out of Your Delivery Speed Choice

Rupali Vasandani

Content Writer

February 6, 2025

5 min read

The Importance of Funds for Startups

As an entrepreneur or start-up founder, securing funding is a crucial part of scaling your business. While there are multiple options available, choosing the right financing method can significantly impact your company’s financial health and growth trajectory. Two popular options are Traditional Term Loans and Revenue-Based Financing (RBF). Each comes with its own benefits and risks, making it essential to evaluate them based on your business needs.

In this article, we will compare traditional term loans and revenue-based financing to help you determine the best fit for your business.

What is a Term Loan?

A term loan is a conventional financing option where a business borrows a fixed sum from a bank or financial institution. The loan is repaid over a predetermined period (the term) with interest, either at a fixed or floating rate.

Key Features of Term Loans:

Fixed repayment schedule (monthly EMIs)
Fixed or floating interest rates
Collateral required in many cases
Predictable payment structure

Pros of Term Loans:

Predictable repayment amounts help with financial planning.
Low cost of capital compared to RBF.
Suitable for businesses with stable cash flows.

Cons of Term Loans:

Fixed monthly payments, even during slow revenue periods.
Collateral or a strong credit history might be required.
Less flexibility in repayment.

What is Revenue-Based Financing (RBF)?

Revenue-Based Financing (RBF) is a funding method where businesses receive capital in exchange for a percentage of their future revenue. Instead of fixed EMIs, repayments fluctuate based on the company’s earnings.

Key Features of RBF:

No fixed repayment schedule
Repayment is a percentage of revenue
No collateral required
More flexible than traditional loans

Pros of Revenue-Based Financing:

Payments adjust according to revenue fluctuations, easing financial strain.
No need for collateral, making it accessible for early-stage businesses.
More flexibility compared to term loans.

Cons of Revenue-Based Financing:

Can be more expensive in the long run.
Uncertainty in total repayment amount.
This may lead to higher repayments during peak revenue periods.

Comparison: Revenue-Based Financing vs. Term Loans

Factor	Revenue-Based Financing (RBF)	Traditional Term Loans
Repayment Structure	% of revenue (variable)	Fixed monthly EMIs
Collateral Required	No	Often required
Impact on Cash Flow	More flexible; adjusts with revenue	Fixed payments, can be restrictive
Total Cost of Capital	Higher, but flexible	Lower, but fixed
Risk Factor	Higher if revenue drops	Fixed obligations, predictable
Best For	High-growth businesses, start-ups	Established businesses with a steady income

Which Option is Right for Your Business?

The choice between RBF and term loans depends on your company’s financial position and risk appetite:

If you prefer predictability and can handle fixed monthly payments, a term loan is a better option.
If you want flexibility and your revenue fluctuates, RBF could be the right fit.

Get the Right Financing with Capital by Shipyaari

Finding the right funding method can be a game-changer for your business. While traditional term loans offer structure and predictability, revenue-based financing provides flexibility based on your revenue flow. Capital by Shipyaari connects you with providers of revenue-based funding, helping you secure the capital you need without the burden of fixed repayments.

Looking for business financing? Learn more about Capital by Shipyaari and explore the best funding options tailored to your needs, today!

Frequently Asked Questions

Which funding option is better for start-ups?

Start-ups with fluctuating revenue may benefit from RBF since payments adjust based on earnings. However, if the business has a steady cash flow and prefers fixed repayments, a term loan may be suitable.

Do I need collateral for revenue-based financing?

No, RBF does not require collateral, making it accessible for early-stage businesses. Term loans, on the other hand, often require collateral or a strong credit history.

Which option is more affordable in the long run?

Term loans generally have a lower cost of capital but require fixed repayments. RBF may be more expensive over time, but its flexible nature can help businesses manage cash flow better.

How does repayment work with revenue-based financing?

With RBF, businesses repay a fixed percentage of their revenue. This means that during high-revenue months, they pay more, and during slower months, they pay less.