An Income Share Agreement (ISA) is a financing structure where the recipient agrees to repay a fixed percentage of future income (or business revenue) over a defined period, rather than a fixed principal amount — repayment is contingent on income being above a floor threshold. Originally developed for education financing; increasingly applied to business and workforce contexts.
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).
Legally unsettled. ISA providers typically structure ISAs as equity- or income-contingent obligations, arguing they are not traditional loans and thus not subject to APR disclosure requirements under TILA (15 U.S.C. § 1601). The CFPB has expressed skepticism of this framing. Some state courts have found ISAs to be subject to usury limits. For practical comparison purposes, calculate the APR-equivalent on any ISA before signing — regardless of how the provider characterizes it.
Revenue-based financing (RBF) is percentage of gross business revenue, typically automated via bank account or platform integration, and uses a fixed factor rate with a known total payback. ISAs are typically percentage of personal income or business net income, may have income verification requirements, and include floor/cap/term mechanics that RBF typically doesn't. Both share the income-contingent repayment design; RBF is more common in business financing while ISAs are more common in education and workforce financing.
The income floor is the minimum income level below which payments are paused (but the obligation doesn't expire — the clock keeps running). Below the floor, no payment is required. Once income recovers above the floor, payments resume. The floor is designed to prevent ISA payments from creating hardship during unemployment or low-income periods.