Skip to content

As a business, what are the advantages and disadvantages of revenue loans?

Table of Contents

A revenue loan is similar to a traditional loan except that, instead of the borrower repaying the lender the principal loan amount together with interest, the borrower will pay the lender a percentage of its net or gross profits until the principal loan amount plus a multiple or cap has been received by the lender. The multiple or cap is similar to the interest element payable on a traditional loan.

The advantages of revenues loans

There are undoubtedly advantages for businesses entering into revenue loans. These advantages include the following:

  • If your business is not eligible to obtain a traditional loan from a bank (because of its credit risk profile or lack of credit history) you may be able to obtain a revenue loan, particularly if you offer the lender security over your business and its assets.
  • If you cannot convince investors to invest sufficient amounts of capital into your business (because they feel it is too risky) they may be willing to grant you a revenue loan, particularly if you offer them security over your business and its assets.
  • If you do not want to give away a large amount of equity in your business for a relatively small amount of capital from angel investors or venture capitalists, you may be able to get them to provide you with a revenue loan. Again, offering them security for the revenue loan is likely to make this prospect more appealing.
  • If your business is a start-up, it may struggle to meet interest payments on a traditional loan. With a revenue loan, the business only needs to make payments when it makes a profit (i.e. when it has money in its bank accounts). Accordingly, the business is less likely to default and find itself in difficulties.

The disadvantages of revenue loans

The main disadvantage of a revenue loan is that, due to the fact the loan is so risky, the borrower generally has to pay between 20 to 30 per cent. of the net profits of the business until the revenue loan (i.e. the principal loan amount plus the multiple or cap) has been repaid in full.

This incentivises the business to grow quickly so that it can repay the revenue loan within a short period. If your business is likely to grow slowly or have low profit margins, a revenue loan is unlikely to be the right option for you. Equally, if your business is a start-up wanting to re-invest all of its profits into the business for growth purposes, then a revenue loan will not be suitable for you.

Continue reading this article below the form
Need legal advice?
Call 1300 544 755 for urgent assistance.
Otherwise, complete this form and we will contact you within one business day.


If your business is looking for ways in which to raise funds for growth, then there are various options to consider in addition to your traditional bank loan or equity investment. One of these options is a revenue loan. However, there are advantages and disadvantages to revenue loans, and they are not suitable for all businesses. If you require any assistance in understanding the different funding options available and which might be best suited for your particular business, please do not hesitate to contact LegalVision today. One of our business structuring experts would be delighted to assist you!

Register for our free webinars

How Founders Can Succeed in the Startup Ecosystem

As a founder, learn how to navigate the startup ecosystem. Register for our free webinar today.

Preventing Wage Underpayment In Your Business

Avoid negative headlines and penalties by ensuring you correctly pay your employees. Register for our free webinar today.

Construction Security of Payment Claims: Your Rights

Learn how to make a claim under SOPA. Register for our free webinar today.

Don’t Sign that Contract: What Businesses Should Review Before Signing

Understand what red flags to look for before signing a commercial contract. Register for our free webinar today.
See more webinars >
Jill McKnight

Jill McKnight

Practice Group Leader

Jill is a Practice Group Leader with particular expertise in Corporate and Banking and Finance Law. She has over 20 years’ experience practising as a lawyer at top law firms in Europe, Asia and Australia. She is qualified in England and Wales, as well as Australia.

Qualifications:  Bachelor of Laws (Hons), University of Manchester, University of North Carolina at Chapel Hill.

Read all articles by Jill

About LegalVision

LegalVision is an innovative commercial law firm that provides businesses with affordable, unlimited and ongoing legal assistance through our membership. We operate in Australia, the United Kingdom and New Zealand.

Learn more

Read other articles by Jill

We’re an award-winning law firm

  • Award

    2023 Fast Firms - Australasian Lawyer

  • Award

    2022 Law Firm of the Year - Australasian Law Awards

  • Award

    2021 Law Firm of the Year - Australasian Law Awards

  • Award

    2020 Excellence in Technology & Innovation Finalist - Australasian Law Awards

  • Award

    2020 Employer of Choice Winner - Australasian Lawyer