Business Loan Interest Rates by Credit Score in 2025

Understanding business loans can feel overwhelming, especially if you are looking for flexible funding options. Many business owners hear about "unsecured business loans" but are unsure how they work or whether they are harder to get than other types of financing. The global unsecured business loans market was valued at $4.3 trillion in 2021 and is projected to reach $12.5 trillion by 2031, representing a compound annual growth rate of 11.7%.

Unsecured business loans are a common topic for entrepreneurs who want to avoid putting up collateral. These loans can be useful, but they come with their own rules and requirements. Learning what makes them different can help you decide if this type of financing fits your situation.

This article will explain what an unsecured business loan is, how it differs from secured loans, and what lenders look for during the approval process.

What Is an Unsecured Business Loan

An unsecured business loan is financing that doesn't require collateral such as property, equipment, or other business assets. The lender doesn't ask you to pledge any specific asset to back the loan.

This differs from a secured business loan, where the lender has the right to claim certain assets if you can't repay. Because there's no collateral involved, unsecured loans carry more risk for lenders.

Key characteristics include:

• No collateral required: You don't pledge property, vehicles, inventory, or equipment to get approved
• Higher interest rates: Lenders typically charge more to balance the risk of not having collateral
• Different approval criteria: Lenders examine credit scores, business revenue, and time in business more closely
• Faster funding: The process moves quicker since lenders don't evaluate or appraise assets

Are Unsecured Business Loans Harder to Get

Yes, unsecured business loans are generally harder to get than secured loans because lenders face higher risk without collateral backing the loan.

When lenders provide unsecured business loans, they can't seize specific assets if you don't repay. To manage this risk, they set stricter requirements for applicants. These often include higher minimum credit scores and stronger financial histories than secured loans require.

The approval process involves more detailed review of financial documents. Lenders examine business and personal credit reports, bank statements, tax returns, and cash flow records more closely to determine repayment likelihood.

Alternative lenders may offer more flexible qualification criteria for unsecured business loans, including lower minimum credit scores or shorter time in business requirements. However, these loans often come with higher interest rates and fees to compensate for increased risk.

At Fundwell, we help you navigate these options by matching your business profile with lenders most likely to approve your application, potentially saving you from multiple rejections that could impact your credit score. Our platform analyzes your specific situation to identify the most favorable terms available to your business.

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Small Business Loans Secured or Unsecured

Small business loans can be either secured or unsecured. The main difference is whether collateral, such as property or equipment, is required by the lender.

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Secured business loans use collateral to back the loan. Lenders may approve these for businesses without strong credit or long histories because the assets reduce risk.

Unsecured business loans don't require collateral. Lenders usually require higher credit scores, more detailed financial records, and longer business track records. Interest rates are often higher, but the process is generally faster since there's no asset evaluation.

Key Requirements for Non Secured Business Loans

Non secured business loans are approved based on a business's financial health and the owner's credit profile. Because these loans aren't backed by collateral, lenders typically apply more stringent requirements.

Credit Score and Financial Track Record

Lenders review both personal and business credit scores when evaluating applications. Traditional lenders often look for personal credit scores of at least 650, though some alternative lenders consider lower scores in the 600-649 range.

Both personal and business credit history influence approval chances. Lenders review payment histories, outstanding debts, and any bankruptcies or delinquencies. You can check credit reports through major credit bureaus like Experian, Equifax, or Dun & Bradstreet for business credit.

Business Revenue and Stability

Minimum annual revenue requirements for unsecured business loans are often set at $120,000 or more. Lenders use bank statements, tax returns, and financial statements to verify these numbers.

Consistent monthly or quarterly revenue demonstrates the business's ability to make loan payments. Lenders also consider how long the business has been operating and most prefer at least one year or more in business before approving an unsecured loan.

Debt to Income Considerations

The debt-to-income (DTI) ratio compares a business's total monthly debt payments to its monthly gross income. Lenders use this to assess whether a business can take on new debt.

Existing business debt can make it harder to qualify for new unsecured funding. If current loans or credit lines already require a significant portion of income for repayment, lenders may be less willing to approve additional financing.

How Does an Unsecured Business Loan Work

An unsecured business loan doesn't require assets as collateral. The process involves several steps from application to repayment.

The typical process includes:

• Application submission: You provide business and personal information, tax returns, bank statements, financial statements, business licenses, and sometimes cash flow projections
• Credit and financial review: The lender examines your application and supporting documents, checking credit scores and evaluating business revenue and cash flow
• Approval decision: Timeline varies from 24-48 hours with online lenders to one to two weeks with traditional banks. At Fundwell, our proprietary AI technology delivers approval decisions in hours, many times in less than 2 hours, significantly faster than traditional financing options
• Funding: If approved, funds are sent to your business bank account, sometimes the same day or within several business days
• Repayment: You repay the loan in regular installments according to agreed terms

Our underwriting process at Fundwell involves a thorough review and evaluation of your financial profile and risk factors before we make a lending decision. If payments are missed after funding, lenders may need to charge late fees, report these missed payments to credit bureaus, initiate collection efforts, and in some cases, pursue legal action to recover the funds.

Steps to Qualify for Unsecured Commercial Loans

Qualifying for unsecured commercial loans involves several steps that help lenders assess risk and make approval decisions.

1. Research Multiple Lenders

Different lenders have varying requirements and processes:

• Traditional banks: Focus on established businesses with strong credit, offer lower interest rates but stricter approval criteria
• Credit unions: Similar to banks but sometimes provide more personalized service
• Alternative lenders: Use technology for quick reviews and may allow lower credit scores or newer businesses

Fundwell offers a marketplace of lenders, allowing you to research multiple financing options in one place. Our technology-driven platform connects you with various lenders, eliminating the need to apply separately with each one. This streamlined approach saves time while helping you identify where requirements and rates differ across lenders. Through Fundwell's transparent application process, you can efficiently compare options tailored to your business's specific financial profile.

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2. Gather Essential Documentation

Lenders request documents to verify financial health:

• Personal and business tax returns
• Financial statements (profit and loss statements and balance sheets)
• Recent bank statements
• Business licenses and registrations
• Cash flow projections

3. Improve Personal and Business Credit

Strategies for improvement include paying down existing debt to lower credit utilization and reviewing credit reports for errors. Making payments on time and reducing outstanding balances may result in higher credit scores over time.

4. Submit an Application and Follow Up

After submitting an application, lenders may ask for clarification or additional details. Responding promptly to these requests helps prevent delays and allows the process to move forward efficiently.

Secured vs Unsecured Business Loan

When comparing secured vs unsecured business loan options, the main difference is whether collateral is required.

A secured business loan is backed by assets like property, equipment, or inventory. Lenders offer lower interest rates and may approve larger amounts or longer repayment terms. The approval process takes longer because the lender evaluates collateral value.

An unsecured business loan doesn't use specific business assets as collateral. Lenders rely more heavily on creditworthiness, financial history, and cash flow. These loans usually have higher interest rates and shorter repayment terms but faster approval since there's no collateral review.

Choosing between options depends on your situation:

• Secured loans: Used by businesses with valuable collateral who want lower interest rates or larger amounts
• Unsecured loans: Selected by businesses wanting to avoid risking assets or needing funds quickly

Tips to Strengthen Approval for a Unsecured Business Loan

1. Maintain Consistent Cash Flow

Lenders review cash flow to see if a business can make regular loan payments. Consistent, predictable revenue from month to month is viewed favorably.

For seasonal businesses like retail shops or contractors, lenders may ask for several years of financial statements to understand income patterns. Providing clear documentation like monthly profit and loss statements helps explain how the business manages through slow periods.

2. Build Relationships With Lenders

Long-term relationships with banks or lenders can support loan applications. Lenders with experience working with your business can access more historical information and may be more comfortable with your operations.

Fundwell has built strong relationships with dozens of lenders over time, giving you the benefit of these established connections when seeking financing. Working through our platform allows you to leverage these relationships to secure the best options for your business without having to build these connections yourself.

Some lenders specialize in certain industries, and working with one familiar with your field can help clarify unique business needs or risks. Our network includes industry-specific lenders who understand the nuances of various business sectors.

Moving Forward With Unsecured Business Financing

Unsecured business loans often have stricter requirements and lower approval rates compared to loans requiring collateral. Lenders generally ask for higher credit scores, reliable business revenue, and clear financial track records to offset the risk of not having assets to secure the loan.

Some lenders offer more transparent and technology-driven processes, reducing paperwork and providing faster decisions. Fundwell provides a straightforward application with clear terms, supporting business owners as they compare options. For those interested in exploring available financing, applications can be started at https://apply.fundwell.com.

Frequently Asked Questions About Unsecured Business Loans

How long does approval take for an unsecured business loan?

Most alternative lenders review and decide on unsecured business loan applications within 24 to 48 hours. Traditional banks often take one to two weeks because their underwriting process involves more detailed review and paperwork.

Can businesses with bad credit get unsecured business loans?

Some alternative lenders consider applications from businesses with credit scores as low as 500 to 550. These loans usually come with higher interest rates and stricter terms compared to loans for applicants with higher credit scores.

What happens when someone defaults on an unsecured business loan?

Defaulting can lower credit scores and may result in collection actions or legal proceedings. The lender doesn't have the right to take specific business assets unless a court judgment is obtained, unlike with secured loans where collateral can be seized directly.

Choosing the right type of business financing is an important decision for any business owner. Two common options are business lines of credit and term loans. These products work differently and are designed for different business needs.

Understanding the structure and features of each option makes it easier to compare them. Below, each product is explained in simple terms, starting with term loans.

What is a Term Loan

A term loan is a type of business financing where a company borrows a specific amount of money and agrees to pay it back over a set period. The repayment is made through regular, scheduled payments that include both the amount borrowed and interest.

When comparing term loan vs line of credit options, term loans provide all funds upfront in a single lump sum. This makes them ideal for large, one-time purchases like equipment or real estate.

Key features of term loans:

• Lump-sum disbursement: All the borrowed money is provided at once
• Fixed repayment schedule: Payments are made on a regular basis, usually monthly, for the entire loan term
• Predetermined loan term: The length of the loan is established upfront, commonly lasting one to ten years
• Interest structure: Term loans may have either fixed or variable interest rates

Each payment includes both principal (the original borrowed amount) and interest (the cost of borrowing). This structure provides consistency in how much is paid each month, making it easier for businesses to budget and plan their cash flow.

A fixed interest rate does not change over the life of the loan, while a variable interest rate can go up or down depending on changes in market rates. Fixed rates offer predictability, but variable rates might start lower.

Some term loans require collateral, which is an asset pledged as security for the loan. Examples include equipment, property, or inventory. Unsecured term loans don't require collateral but typically have higher interest rates to offset the increased risk to lenders.

What is a Business Line of Credit

A business line of credit provides access to a set amount of money that can be borrowed, repaid, and borrowed again. It operates similarly to a business credit card but often comes with higher credit limits and different terms.

Unlike a term loan, which provides a single lump sum, a line of credit offers ongoing access to funds as needed. This flexibility makes it particularly useful for managing cash flow or covering unexpected expenses. According to the 2024 Small Business Credit Survey, 40% of small businesses applied for a business line of credit, making it the most commonly sought form of financing. This flexibility makes it particularly useful for managing cash flow or covering unexpected expenses.

Key features of business lines of credit:

• Revolving credit limit: The credit limit is the maximum amount available to borrow
• Draw-as-needed access: Funds can be withdrawn at any time, in any amount up to the credit limit
• Interest on used funds only: Interest accrues only on the amount currently borrowed
• Repayment flexibility: Minimum monthly payments are required, but the full balance can be repaid anytime

The revolving nature means that as amounts are borrowed and repaid, funds become available to use again, up to the established limit. This differs significantly from the line of credit vs term loan structure, where term loans provide funds only once.

Interest is charged only on the amount that has been withdrawn from the line of credit. Some lenders may also charge a small fee each time funds are accessed, called a draw fee. These fees typically range from $25 to $100 per draw.

Working capital refers to the money needed for daily operations. A line of credit helps cover temporary gaps in cash flow, manage seasonal changes, or pay for unexpected costs like emergency repairs or sudden opportunities.

Business Line of Credit vs Term Loan: Key Differences

The main difference between loan versus line of credit is how money is provided and how it is paid back. Understanding these differences helps businesses choose the right financing option for their specific needs.

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Funding structure differences:

A term loan gives all funds at once, commonly used for buying equipment, real estate, or other large expenses. A line of credit allows access to funds as needed, up to a set limit, and funds can be drawn, repaid, and drawn again.

Repayment approach variations:

Term loans follow a fixed repayment schedule, usually with the same amount due each month. This makes future payments predictable and easier to budget for. A line of credit has a flexible repayment structure where only a minimum payment is required each cycle, but higher payments or full repayment are allowed at any time.

Interest on a term loan is charged on the entire amount from the start, and rates are often lower for businesses with strong qualifications. A line of credit charges interest only on the amount currently borrowed. Rates and fees can be higher, but interest applies only to funds in use, not the full credit limit.

Common use cases:

• Term loans: Equipment purchases, real estate acquisitions, business expansion projects, debt consolidation
• Lines of credit: Inventory purchases, payroll gaps, seasonal cash flow management, emergency expenses

How to Choose Between a Term Loan vs Line of Credit

The decision between a business term loan vs line of credit depends on several factors including funding needs, repayment preferences, and business qualifications.

Assess your funding requirements:

Term loans work best for situations where a business requires a specific amount of money at one time, such as for a large project or purchase. Business lines of credit are designed for flexible, ongoing access to funds, which can be useful for handling expenses that come up over time.

Consider whether the need is for a lump sum or repeated access to smaller amounts. A restaurant buying new kitchen equipment would likely choose a term loan, while a seasonal retailer managing inventory fluctuations might prefer a line of credit.

Evaluate repayment preferences:

Term loans have set monthly payments, which remain the same for the duration of the loan if the interest rate is fixed. Business lines of credit offer flexible repayment, allowing a business to pay the minimum required or more at any time.

The choice depends on whether steady, predictable payments are preferred, or if flexibility is more important due to varying cash flow patterns throughout the year.

Compare costs and qualification requirements:

Term loans may offer lower rates for qualified businesses, but interest applies to the full amount borrowed from day one. Lines of credit may have higher rates or fees, but interest is only charged on what is drawn. Additionally, the small business lending market is projected to grow at a compound annual growth rate of 13% from 2024 to 2032, ultimately reaching a market size of $7.22 trillion.

Lenders often require higher credit scores, longer time in business, and more established revenue history for term loans. Business lines of credit may have less strict requirements and can be accessible to businesses with shorter histories or fluctuating revenue.

Avoiding Common Business Financing Mistakes

When considering a business loan vs line of credit, several common mistakes can impact a business's financial health and long-term success.

Focusing only on interest rates:

Interest rates represent just one factor in the total cost of borrowing. Fees, repayment schedules, and other charges can increase the overall expense, even when the interest rate appears low. A loan with a lower rate but high origination or maintenance fees may end up costing more than a loan with a slightly higher rate but fewer additional charges.

Mismatching financing type to business needs:

The intended use of funds affects which financing option is most appropriate. Term loans are designed for large, one-time investments, while lines of credit are structured for ongoing or fluctuating expenses. Using a term loan for day-to-day operating costs or a line of credit for a substantial, single purchase can result in higher costs or create cash flow challenges.

Overlooking qualification requirements:

Lenders may have requirements such as personal guarantees, financial covenants, or collateral to secure the financing. Failing to review all terms may expose a business to risks if requirements are not met. Reading and understanding all conditions before agreeing to any financing helps avoid unexpected obligations.

Finding the Right Business Financing Solution

Selecting between a business line of credit versus loan depends on the specific requirements and goals of a business. Some businesses look for funding that covers one-time, large expenses. Others prefer access to funds over time to handle ongoing or unpredictable costs.

The process involves comparing features, repayment terms, interest rates, and qualification criteria of each option. Fundwell provides a transparent platform where business owners can review and compare these choices side by side.

Through Fundwell's platform, users have access to clear terms and professional guidance for both term loans and lines of credit. This approach centers on offering options and information, allowing each business to select the financing solution that fits its unique needs.

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Frequently Asked Questions About Business Lines of Credit and Term Loans

Can a business have both a term loan and line of credit simultaneously?

Yes, many businesses maintain both a term loan and a line of credit at the same time, using each for different purposes as long as they meet lender requirements and maintain manageable debt levels.

How quickly can businesses access funds from term loans versus lines of credit?

Term loans typically take several days to a few weeks for approval and funding, while lines of credit can provide access to funds within a few days after the initial approval process is complete.

What happens if a business cannot make payments on time for either option?

Late payments on either a term loan or a line of credit can result in late fees, damage to credit scores, and potential legal action or loss of collateral if the loan is secured.

Which financing option works better for new businesses?

Lines of credit are often more accessible for new businesses since term loans typically require a longer operating history and stronger financial documentation to qualify.

Can businesses convert a line of credit balance to a term loan?

Some lenders offer the option to refinance a line of credit balance into a term loan, which allows the outstanding balance to be paid off over a set period at a fixed interest rate.

Some businesses grow quickly. Others grow steadily over time. In either case, growth often requires capital, whether to hire staff, expand locations, or purchase inventory.

Small businesses that generate steady revenue but do not meet traditional loan requirements sometimes explore alternatives. One of these alternatives is revenue based financing.

This article explains how revenue based financing works, how it differs from other funding options, and how small businesses use it to support growth.

What is Revenue Based Financing?

Revenue based financing is a funding option where businesses receive capital in exchange for a percentage of their future revenue. Unlike traditional loans, there are no fixed monthly payments. Instead, the amount paid changes based on how much the business earns.

This type of financing doesn't require giving up ownership in your company like equity financing does. The business keeps full control while gaining access to growth capital (a form of non-dilutive capital).

You might also hear terms like "revenue based funding," "revenue based finance," or "revenue financing." All these refer to the same basic concept, which is funding that's repaid through a portion of your ongoing sales.

Small businesses often choose revenue based financing because:

• It offers flexible payments that adjust with business performance
• The approval process is typically faster than traditional bank loans
• It doesn't require personal collateral or perfect credit
• Business owners maintain full ownership

How Does Revenue Based Funding Work?

Revenue based funding provides a business with a lump sum of money upfront. In return, the business agrees to pay back a percentage of its monthly revenue until reaching a predetermined total amount.

The process is straightforward:

1. A business applies with a revenue based funding provider
2. The provider reviews the business's revenue history
3. If approved, the business receives capital (often between $50,000 to $3 million)
4. The business pays back a fixed percentage of monthly revenue (typically 1-9%)
5. Payments continue until reaching the agreed total repayment amount

For example, if a business receives $100,000 with a 1.5x repayment cap, they'll ultimately pay back $150,000. If the agreement sets the payment at 5% of monthly revenue, a month with $50,000 in revenue would require a $2,500 payment.

The key difference from traditional loans is that payments flex with your business performance. During slower months, you pay less. During stronger months, you pay more.

Who Benefits From Revenue Based Loans?

Revenue based loans work best for businesses with consistent revenue streams and strong growth potential. These loans are particularly valuable for companies that want funding without fixed payment obligations.

Ideal candidates include:

• Software-as-a-Service (SaaS) companies with subscription revenue
• E-commerce businesses with steady sales
• Professional service firms with recurring clients
• Seasonal businesses that need flexible payment structures
• Growth-stage companies needing capital to scale

The common thread is predictable revenue. Most revenue based lenders look for businesses earning at least $10,000 in monthly revenue with operating histories of six months or more.

Recurring Revenue Businesses

Subscription-based businesses benefit greatly from revenue based financing. Their predictable monthly income makes it easier to forecast repayments and manage cash flow.

For example, a software company might use revenue based business funding to develop new features that attract more subscribers. As new customers sign up, a portion of that increased revenue goes toward repayment.

Seasonal or High-Growth Companies

Businesses with seasonal fluctuations often struggle with traditional loans that require the same payment regardless of revenue. Revenue based loans adjust automatically with business cycles.

A retail business might use revenue based financing to stock up before the holiday season. During peak sales months, they'll make larger payments, while slower months require smaller payments—aligning the funding costs with their natural business rhythm.

How Revenue Based Lending Differs From Traditional Loans

The most significant difference is how payments work. With revenue based loans, your payment amount changes each month based on your actual revenue. Traditional loans require the same payment amount regardless of how your business performs.

Revenue based lenders focus primarily on your revenue history rather than credit scores or collateral. This makes them more accessible to growing businesses that might not qualify for traditional financing.

The cost structure also differs. Instead of interest rates, revenue based financing uses a repayment multiple or "factor rate" that determines the total amount you'll pay back. For example, with a 1.5x multiple on $100,000, you'll repay $150,000 total.

Advantages and Drawbacks of Revenue Based Financing

Revenue based finance offers unique benefits but also comes with limitations. Understanding both helps determine if it's right for your business.

Benefits

Flexible payments: When revenue decreases, so do your payments. This helps manage cash flow during slower periods.

Maintain ownership: Unlike equity financing, you don't give up any control of your business.

Faster approval: Many revenue based financing companies can approve and fund applications within days or weeks.

Revenue focus: Qualification is based primarily on your revenue performance rather than personal credit or collateral.

Growth alignment: The payment structure aligns with your business growth—as you grow, you pay back faster.

Potential Drawbacks

Higher total cost: The total repayment amount is typically higher than traditional loan principal plus interest.

Revenue reporting: You'll need to provide regular revenue reports to your funder.

Revenue requirements: Most revenue based financing firms require minimum monthly revenue (often $10,000+).

How To Get Started With Revenue Based Business Funding

If revenue based financing seems like a good fit for your business, here's how to prepare for the application process:

Check Your Revenue Stability

Review your monthly revenue for the past 6-12 months. Most revenue based lenders look for:

• Consistent or growing monthly revenue (typically $10,000+)
• At least 6-12 months of operating history
• Profit margins that can support the revenue percentage payments

Gather Your Financial Documents

Prepare these key documents that lenders will request:

• 4 months of business bank statements
• Profit and loss statements
• Revenue reports by month
• Business tax returns
• Business plan (for newer businesses)

These documents help lenders verify your revenue claims and assess your business's financial health.

Submit Your Application

The application process varies by lender but typically includes:

1. Completing an online application
2. Sharing your financial documents
3. Discussing your business and funding needs
4. Reviewing and accepting an offer
5. Receiving funds (often within days of approval)

Many platforms like Fundwell connect businesses with multiple revenue based lenders through a single application, making it easier to compare options.

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Using Revenue Based Financing for Business Growth

Small businesses use revenue based financing to fuel various growth initiatives. The flexible payment structure makes it particularly well-suited for investments that generate additional revenue.

Common uses include:

Marketing expansion: Increasing advertising spend to acquire new customers.

• Digital advertising campaigns
• Content marketing initiatives
• Trade show participation

Inventory investments: Purchasing additional inventory to support sales growth.

• Seasonal inventory buildups
• New product launches
• Bulk purchasing discounts

Team growth: Hiring additional staff to increase capacity.

• Sales team expansion
• Customer support personnel
• Specialized roles like developers or designers

Equipment and technology: Upgrading systems to improve efficiency.

• Software implementations
• Manufacturing equipment
• Technology infrastructure

The key is using the funding for activities that will generate more revenue, creating a positive cycle where the additional income helps repay the financing.

Is Revenue Based Financing Right for Your Business?

Revenue based financing offers a flexible alternative to traditional loans and equity investments. It works particularly well for businesses with predictable revenue that need capital to grow.

Consider revenue based financing if:

• Your business has consistent monthly revenue
• You want payment flexibility that aligns with your revenue cycles
• You prefer to maintain full ownership of your business
• You need funding faster than traditional loans can provide
• Your growth plans will generate additional revenue to support repayment

The most successful users of revenue based financing are businesses that can clearly connect their funding use to revenue growth. When the investment generates more income, the percentage-based repayment structure becomes even more advantageous.

To explore revenue based financing options tailored to your business needs, consider platforms like Fundwell that can match you with appropriate lenders based on your revenue profile and funding requirements.

FAQs About Revenue Based Financing

What minimum monthly revenue do I need for revenue based financing?

Most revenue based financing providers require businesses to generate at least $10,000 in monthly revenue, though some lenders may have higher thresholds of $15,000 to $50,000 depending on the funding amount requested.

How is the repayment percentage determined for revenue based loans?

Lenders determine the repayment percentage (typically 1-9% of monthly revenue) based on your business's revenue consistency, industry type, growth rate, and the amount of funding provided.

Can I pay off revenue based financing early?

Yes, most revenue based financing agreements allow early repayment, sometimes with a discount on the remaining balance, though the terms vary by lender and should be confirmed before signing.

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