Having trouble qualifying for traditional loans because your business hasn't yet generated revenue? There are business loans with no revenue requirements, and these may be an option for you. Let’s explore them.
What Lenders Look For
While it might seem that all lenders look at the same criteria when reviewing loan applications, that's not always the case. Each has its own secret recipe, so to speak, for what they want applicants to have. Here's what traditional lenders look for from applicants.
Revenue
Yes, many lenders do want to know that your business has solid revenues, as this is an indicator that you'll be able to pay back the loan. However, lenders also look at other criteria for businesses with no revenue.
Business History
Traditional lenders like credit unions and banks want to work with businesses that are well-established. Typically, they'll require you to be in operation for at least two years.
Financial Statements
Financial statements tell your business' story. They give lenders an indication of how your business is balancing revenues and expenses, and they show whether you've struggled in the past.
Credit Score
Lenders often look at either your business credit score or your personal credit score to determine how risky you are as a borrower. Your credit history and schedule of debts can help them determine whether you can afford the payment, and whether you pay your bills on time.
Challenges for Businesses with No Revenue
So what happens if you can't provide proof of revenue, or if your business hasn't been in business long enough to qualify for financing?
It may be difficult to work with traditional lenders, who are often hesitant to approve loans for startups or businesses with no revenue. A solid business history and stable revenues are decent indicators that you would be able to pay back a loan. To be paid back is ultimately what the lender wants..
But without proof in the form of revenue, how can a lender know that you will pay back the money?
Loan Options for Businesses with No Revenue
There are several financing options for business loans with no revenue requirements.
Online-Only Loans
Online lenders come in all shapes and sizes, and many consider criteria other than your revenues to qualify you for financing. Lenders may consider your credit score, monthly sales (if you have them), or sales projections.
SBA Microloans
Microloans backed by the Small Business Association have more flexible qualification standards. Rather than revenue requirements, lenders may look at your creditworthiness and time in business. You may also be required to provide collateral for the microloan.
Business Credit Cards
Having a business credit card allows you to make purchases for your business on your schedule without having to wait for revenues to come in. Get a card with rewards and you may be able to earn cash back and other perks.
Equipment Financing
If you need to purchase equipment, an equipment loan focuses on the value of the equipment you're buying (which acts as collateral) more than your revenues.
Angel Investors and Venture Capital
Angel investments and venture capital aren't loans. Instead, you give up equity in your business in exchange for working capital.
Key Factors for Securing Loans Without Revenue
Here's how you can make your loan application stand out when you don't have revenues to rely on.
Have a Strong Business Plan
While not every lender will ask for it, having a detailed business plan that shows growth potential and market research can prove to lenders that you're serious about your business.
Know Your Personal Creditworthiness
Some lenders may look at your personal credit when the business has no revenue. Make sure you know your credit score, and request correction of any errors you find on your credit report. Pay down existing debt as much as possible to improve your credit scores. A higher score could help you qualify for more financing opportunities.
Offer Collateral and Assets
Taking out a secured loan means that you offer personal or business assets as collateral to secure the loan. This may be an option when you don't have the revenue to qualify for other loans.
Bring on a Co-Signer or Guarantor
Applying with a co-signer who has a strong credit standing can improve loan approval chances. Ideally, your co-signer would be someone with a vested interest in the business.
Pros and Cons of Business Loans with No Revenue
So is it even a good idea to explore business loans with no revenue requirements? Like anything, there are benefits and drawbacks.
Pros
If you're just starting your business but lack the capital to fully fund the launch, a business loan could give you the working capital you need. And even if you don't yet have a history of sales or a credit profile, financing could give you the opportunity to build business credit over time. That means that in the future, you might qualify for better rates and terms.
Cons
Taking on debt with no revenue increases your financial risk. If you aren't yet sure what your revenues will be, you may not be able to pay back the loan.
Another drawback is that some lenders may charge higher rates due to the increased risk.
Tips for Improving Loan Approval Chances
Diversify
Consider patching together multiple sources of funding. For example, you might need a smaller loan if you can get a grant to cover part of your expenses.
Research lenders with more flexible requirements
Remember that alternative lenders may have more flexible requirements. Some lenders, like SBG Funding, connect you to different loan programs when you apply, which means that even if you don't qualify for one, you might qualify for another.
Present a strong application
It's important to build a strong case for your business. Highlight how your business will generate revenue in the future and include realistic revenue forecasts in your loan application.
Revisit your financial plan
Carefully consider whether you absolutely need to borrow money now, or whether you could wait a few months when your business has revenues. That way, you may qualify for more options with better terms.
While it may take a little creativity and research, finding business loans with no revenue requirements is possible. Focus on casting your business in a way that shows lenders how the loan will help you generate revenue in the future.
