July 25, 2023
min read
Written by: 
Nikolaus Hilgenfeldt

Asset-Based Financing vs Revenue-Based Financing - Which To Choose

In today's dynamic business landscape, growing companies have various funding options.

As you explore them, you may come across two commonly used choices – Asset-Based Financing (ABF) and Revenue-Based Financing (RBF).

Both options offer non-dilutive access to capital, allowing businesses to fuel their growth without sacrificing equity.

However, it's essential to understand the distinct lending structures and risk perspectives associated with each approach.

In this article, we will examine the differences between ABF and RBF, providing valuable insights and key considerations to help you navigate these financing options effectively.

Asset-Based Financing vs Revenue-Based Financing - An Overview

When considering financing options for your business, asset- and revenue-based financing are two viable options.

Both approaches offer unique benefits and considerations, deciding which to choose depending on your specific circumstances and goals.

Asset-Based Financing

As the name suggests, asset-based financing involves leveraging your company's assets as collateral to secure a loan.

This type of financing is well-suited for businesses that possess valuable assets such as equipment, inventory, or real estate.


Using these assets as collateral allows you to access capital based on their appraised value.

Furthermore, it provides flexibility and can be helpful for companies seeking to fund growth initiatives or manage cash flow fluctuations.

However, it's important to note that asset-based financing may require a thorough evaluation of your assets and involve more complex documentation processes.

Revenue-Based Financing

Conversely, revenue-based financing is based on a company's future revenue streams.

Rather than relying on collateral, this type of financing involves receiving upfront capital in exchange for a percentage of future revenue.


Revenue-based financing can appeal to businesses demonstrating consistent revenue generation but lacking substantial tangible assets.

It offers repayment flexibility, as the amount repaid is tied to a percentage of future sales.

However, it's important to carefully consider the impact on your cash flow and profitability, as a portion of your revenue will be allocated toward repayment.

Deciding Factors in Asset-Based Financing Vs Revenue-Based Financing

When choosing between asset-based financing and revenue-based financing, consider the following factors:

1. Asset Value

Asset-based financing may be a favorable choice if your business possesses valuable assets that can be used as collateral.

Conversely, revenue-based financing can be an attractive alternative if your assets are limited or their value is insignificant.

2. Cash Flow and Revenue Stability

Evaluate your cash flow and revenue stream's consistency and predictability.

Revenue-based financing may be suitable if you have a stable and growing revenue base.

In contrast, if your cash flow is more irregular, asset-based financing can provide the necessary working capital to manage fluctuations.

3. Long-Term Goals and Ownership

Consider your long-term business goals and the importance of maintaining ownership and control.

Asset-based financing allows you to retain full ownership while accessing capital.

Revenue-based financing may involve sharing a portion of future revenue with the lender.

4. Risk Assessment and Cost

Assess your risk and the cost implications of each financing option.

Asset-based financing may come with lower interest rates due to the collateral.

On the contrary, revenue-based financing may involve a higher cost as a percentage of future revenue.

Ultimately, it's crucial to thoroughly analyze your business's financial position, growth plans, and risk tolerance when choosing between asset- and revenue-based financing. 

Asset-Based Financing Vs Revenue-Based Financing – Pros and Cons

Now that we've examined the key aspects of asset-based and revenue-based financing, let's explore the pros and cons of each approach in more detail.

Pros of Asset-Based Financing

✅ With assets as collateral, ABF provides significant capital to support growth initiatives, working capital needs, or debt consolidation.

✅ You can use funds for various purposes, such as expanding operations, investing in equipment, funding acquisitions, or managing seasonal fluctuations in cash flow.

✅ Asset-based loans often come with lower interest rates than other financing forms, as the collateral mitigates the lender's risk. It can result in cost savings over the life of the loan.

✅ Compared to traditional loans, it involves a more streamlined approval process, as the focus is on the value of the collateral rather than extensive credit evaluations. 

✅ By unlocking the value of your assets, you can enhance cash flow management and ensure sufficient working capital to meet operational needs and seize growth opportunities.

Cons of Asset-Based Financing

❌ The process of assessing the value of assets and conducting appraisals can be time-consuming and costly. The lender may require professional evaluations and regular monitoring of the collateral.

❌ Asset-based financing is contingent on the availability and quality of tangible assets.

❌ In the event of loan default, the lender has the right to seize and liquidate the collateral assets. 


Pros of Revenue-Based Financing

✅ It allows businesses to secure funding without diluting ownership or giving up equity. 

Flexible repayment structure aligns with business performance.

✅ As the business grows and generates more revenue, the repayment amount increases, reflecting the business's ability to support higher payments.

Cons of Revenue-Based Financing

❌It typically carries a higher cost than traditional loans due to the risk premium associated with the lender's reliance on future revenue. 

❌ RBF may not be appropriate for companies in industries with high seasonality or significant fluctuations in revenue.

❌ Since repayments are tied to a percentage of future revenue, businesses may experience a reduced cash flow available for other operational needs. 


Asset-Based Financing Example With Myos

To better understand how asset-based financing works, let’s review a real-life example.

Loan Details

HomeHarmony is a flourishing home decor and furnishings store generating €1,500,000 in yearly revenue.

Their recent TikTok campaign propelled them to popularity, showcasing their intricate designs and skyrocketing demand.

HomeHarmony sought €200,000 in working capital to efficiently handle the influx of orders to invest in new inventory, warehouse renovations, and operational scaling.

After thorough deliberation, HomeHarmony opted for asset-based funding from Myos. Through Myos' stock finance program, HomeHarmony would employ its existing warehouse stock as collateral.

The agreed-upon terms with Myos were as follows:

  • Approved loan amount: €200,000
  • Interest fee: 2% per month
  • Project duration: 10 months
  • Payments made directly to HomeHarmony's account

Repayment Structure

HomeHarmony commenced product sales one month after securing the financed goods, leading them to schedule the first loan repayment three months into the contract.

During the fourth month, they repaid 20% of the loan, prompting Myos to release 20% of the inventory for HomeHarmony to sell.

Another 40% was repaid in the sixth month, and the remaining 40% was settled by the tenth month, concluding the project.

The additional working capital proved instrumental in enabling HomeHarmony to meet the heightened demand for their products, significantly contributing to their business growth and success.

Loan Impact On Business Growth

Now, let's delve into the loan's profit and loss (PnL) impact on HomeHarmony's business.

Assuming the augmented customer demand led to a 50% surge in sales, HomeHarmony's new yearly revenue would amount to €1,500,000 x 1.5 = €2,250,000.

To calculate the loan cost, we must consider the interest payments.

As HomeHarmony commenced repayment from the fourth month, they incurred interest on the entire €200,000 for the initial 3 months, amounting to €200,000 x 2% = €4,000 per month, totaling €12,000.

HomeHarmony repaid 20% of the loan from the 4th-6th month, leaving 80% outstanding.

Interest during these months would be €160,000 x 2% = €3,200 per month, summing up to €6,400.

During the sixth to the tenth month, HomeHarmony repaid another 40%, leaving 40% of the loan remaining.

Interest for each month would be €80,000 x 2% = €1,600, ultimately resulting in €6,400.

Consequently, the total interest cost for the ten-month loan period amounted to €12,000 + €6,400 + €6,400 = €24,800.


Now, let's evaluate the net PnL impact on HomeHarmony's business.

Considering the increased yearly revenue of €750,000 (€2,250,000 - €1,500,000) and subtracting the interest cost of the loan (€24,800), the net PnL impact equates to €725,200.

💡 By leveraging Myos' asset-based financing, HomeHarmony secured the necessary working capital to meet escalating product demand, bolster their inventory in advance, and enhance their warehouse.

Consequently, they achieved a remarkable 50% revenue growth and a substantial positive PnL impact of €725,200. 

Revenue-Based Financing Example

Here's an example of how revenue-based financing could work for an ecommerce company:

Loan Details

Let's say an ecommerce business called "Fashion Hub" sells clothing and accessories online. They have been in operation for a few years and have established a track record of consistent revenue growth.

However, they need additional capital to expand their product inventory, invest in marketing campaigns, and improve their website's user experience.

They approach an RBF investor, such as a specialized financing company, to discuss the terms of the funding arrangement.

Repayment Structure

After assessing Fashion Hub's financials and growth projections, the RBF investor offers them $100,000 in funding.

The RBF investor will receive a percentage of Fashion Hub's monthly revenue until a predetermined "cap" amount is reached or a specific repayment multiple is achieved.

Here's a hypothetical example of the terms:

1. Percentage of Monthly Revenue

The RBF investor and Fashion Hub agree on a revenue percentage of 5%. It means that Fashion Hub will pay 5% of its monthly revenue to the RBF investor until they repay the  financing.

2. Payment Cap

The RBF investor and Fashion Hub set a maximum payment cap to limit the total amount Fashion Hub needs to repay. Let's assume they set the cap at $150,000.

3. Payment Term

Fashion Hub and the RBF investor agree on a payment term, say 24 months, to repay the funding. If Fashion Hub's revenue grows rapidly, they may repay the financing earlier than the agreed-upon term.

4. Revenue Reporting and Payment

Fashion Hub usually provides regular revenue reports to the RBF investor every month. Based on these reports, Fashion Hub pays 5% of its monthly revenue until the financing is repaid or the cap is reached.

💡 Using revenue-based financing, Fashion Hub can access the funds to fuel its growth while aligning repayment with its actual revenue performance.

Additionally, if Fashion Hub experiences slower months, its payment obligations adjust accordingly, providing flexibility in managing cash flow.

📌 It's important to note that the specific terms and conditions of the asset or revenue-based financing can vary depending on the agreement between the ecommerce company and the financial provider.

Wrapping It Up

Asset-based financing offers the advantage of leveraging existing assets, while revenue-based financing provides a flexible approach aligned with revenue fluctuations for ecommerce businesses.

Choose asset-based financing if you have substantial assets and need larger capital for expansion.

Opt for revenue-based financing if you're experiencing rapid revenue growth and require flexibility in funding.

Evaluate your specific needs, risk tolerance, and long-term goals to make an informed decision that fosters sustainable growth in the dynamic ecommerce landscape.

What Sets Myos Apart?

As an ecommerce business owner, you understand that success goes beyond a great product and a beautiful website.

Securing sufficient working capital is crucial for your online shop's smooth running and growth. Myos financing offers valuable support in expanding your business through the following means:

  • Empowering Growth Channels: With Myos financing, you can fund essential aspects of business growth, such as product launches, marketing campaigns, and expanding your inventory.
  • Unlocking Potential: By investing in bigger growth channels, you can attract new customers, boost sales, and elevate your online shop to the next level.
  • Stress-free Working Capital: Myos asset-based financing ensures you have the necessary working capital without worrying about cash shortages or disruptions to your cash flow.

So, sign up today, and get between €10.000-2.500.000 without personal guarantees, extensive paperwork, or a vast application process.

With Myos financing at your disposal, you can confidently focus on scaling your ecommerce business, tapping into its full potential for sustained growth and success.


Can Asset-based Financing Be Beneficial for Startups and Small Businesses?

Asset-based financing can benefit startups and small businesses, especially if they have valuable assets that can be used as collateral. It can provide access to larger amounts of capital, which can be crucial for scaling and initial growth stages.

Does Asset-Based Financing Involve a Risk to My Assets?

Asset-based financing involves the risk of losing the assets used as collateral if you cannot repay the loan or meet the agreed-upon terms. Therefore, it is essential to carefully assess your business's ability to fulfill repayment obligations before opting for asset-based financing.

Can Revenue-Based Financing Impact My Profitability?

Yes, revenue-based financing may impact your profitability since a portion of your future revenue goes toward repaying the financing. While it provides flexibility during lean periods, evaluating how this arrangement will affect your bottom line in the long run, is crucial.

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