Revenue Based Financing is a hybrid debt instrument where repayments are tied to the income generated by a development project, rather than a fixed schedule. This structure is especially useful for SME property developers in the UK managing irregular or seasonal cash flows. Borrowers typically repay a percentage of gross or net revenue until a set cap or return multiple is reached. In property development finance UK markets, this approach blends elements of debt and equity, offering flexibility to the borrower while still delivering returns to the lender. It’s often used where future sales or rental income will drive repayment capacity.
Within the capital structure, Revenue Based Financing typically sits in the Hybrid Debt – Debt with Equity-like Features category, reflecting its flexible repayment profile and variable return. It is often evaluated alongside a Profit-Participating Loan, although the key distinction lies in revenue linkage rather than profit share. In live development scenarios, lenders may require additional protections such as a Turnover Undertaking to ensure income is directed toward servicing the facility. This structure is particularly relevant for schemes with phased sales or stabilising rental income, where aligning repayments with actual cash inflows reduces strain on working capital during delivery.
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