Income Share Agreement (ISA)

ISAs were popularized in higher-education financing (Purdue University, Lambda School/BloomTech, coding bootcamps) as an alternative to traditional student loans. The structure: funder provides upfront capital; recipient agrees to pay X% of monthly income for Y months, capped at Z× the original funding amount, with payments suspended when income falls below the floor.

Business-context ISAs are structurally adjacent to Revenue-Based Financing (RBF). The key practical differences: RBF draws are percentage of business revenue (gross), automated via bank statement or platform data integration, and typically use a factor rate (not a stated interest rate). ISAs are often framed as income-linked (personal income or business net income) and may include income verification requirements. Both structures share the flexible-repayment-tied-to-income-or-revenue design.

Regulatory treatment is unsettled. The CFPB has issued guidance questioning whether ISAs should be classified as credit under the Truth in Lending Act (15 U.S.C. § 1601 et seq., cfpb.gov). Some state AGs have treated ISAs as loans subject to usury laws. California, Colorado, and Illinois have enacted specific ISA disclosure statutes or required ISA providers to obtain consumer lending licenses. The FTC has also investigated ISA marketing practices under 15 U.S.C. § 45 (ftc.gov). For education ISAs, the ISA Socially Responsible Certification (ISA Certification) standards framework exists but is not federally mandated.

For small business owners considering ISA-like products: compare effective APR-equivalent carefully. A 5% revenue share for 36 months with a 2.0× cap on a $100K advance resembles an MCA at 1.20–1.40 factor, but the income-contingency design reduces cash-flow stress in low-revenue months. Understand the income floor (below which payments pause), the cap (maximum total repayment), and the term (maximum duration before the obligation expires, regardless of amount repaid).