Disclaimer: Information in the revenue-based financing articles is provided for general information only, does not constitute financial advice, and does not necessarily describe Biz2Credit commercial financing products. In fact, information in the revenue-based financing articles often covers financial products that Biz2Credit does not currently offer.

For small businesses with limited revenue, obtaining financing can seem like an uphill battle. In an era where banks and financial institutions prioritize profitability and strong cash flow, securing a loan when your business is earning less than expected raises important questions.

This article explores the evolving landscape of small business lending, the criteria lenders evaluate beyond just revenue, and the alternatives that may be available to low-revenue businesses. We’ll examine the risks and opportunities that come with seeking loans in challenging financial circumstances, providing insights for business owners navigating uncertain economic terrain.

Key Points

• Several loan types for low revenue businesses: From crowdfunding to invoice factoring, there are options for lower revenue businesses.
• Eligibility requirements: There are some requirements and expectations for small business owners with low revenue, including minimum revenue, credit score, and potentially a personal guarantee.

Why Lenders Need to Evaluate Your Revenue

Capital is the lifeblood of every business, and when a small business presents negative cash flow, it raises all sorts of challenges for business owners.

When you take low cash flow and add a business loan into the mix, it brings the potential for even more financial challenges, and a high risk profile for lenders. In a case like this, your personal credit score can potentially help to show you’re capable of making the required monthly payments.

What to Consider Before Applying for a Business Loan With Low Revenue

Many factors can make small business owners look for small business loans with low revenue.

As a borrower, you also need to take into account the risks that come with it. Small business loans already have fairly significant competition — especially with the most well-established lenders like banks or the Small Business Administration — and low revenue will make your options shorter and riskier. Here’s what to keep in mind:

• When Will You Get Revenue After Acquiring the Loan: If you have a running business waiting for your clients’ payments, it’s a good idea to account for this, and potentially letting the lender know in advance. With the certainty of later payment, a lender might become more inclined to offer you the funding you need.
• Cut Overhead Expenses Dramatically: Entrepreneurs run their business with only the bare business needs while maintaining high efficiency. Look at this step, and you might be surprised how much in operational expenses you could potentially save on.
• Can You Afford to Wait: Understandably, many small business owners can’t afford to wait when dealing with low revenue situations. But if you can, it could be a perfect opportunity to look for more ways to generate revenue, improve your credit score, and wait for pending client payments. Sometimes, slowing down the momentum of your small business can prove to be more profitable.

Best Types of Loans for Small Businesses with Low Revenue

Acquiring a small business loan with low revenue will present other types of challenges for small business owners. Even if you have a stellar credit score or credit history, low cash flow will make most traditional lenders opt-out and not approve your loan request.

If your small business is facing a period of low revenue, chances are that acquiring a bank loan or an SBA loan is off the table. For these lenders, revenue requirements are essential, and even for established business owners with good credit scores, years of practice, and consistent accounts receivable can prove already challenging and time-consuming.

But there are other types of loans that financial institutions or alternative lenders can offer you, even if your cash flow isn’t the best.

Business Credit Card

Business credit cards, much like personal credit cards, allow you to borrow a determined credit limit and repay your balance at the end of the month. One of the advantages of business credit cards is that you can avoid paying interest rates altogether if you consistently repay at the end of the month. Another hidden benefit is that this method allows you to improve your FICO credit score for a small business loan request in the future.

Business credit card issuers are not overly concerned with your interest rates, as they prefer to use your personal income and credit score as the qualifying basis for approval. It’s a good option for new businesses without polished financial statements, but keep in mind the repayment period because if you fail your payments, the interest rate will accrue until fully paid.

Business Line of Credit

Another good option if your current small business’s financial situation is not the best, a business line of credit works similarly to a business credit card. You receive a lump sum of cash on your business bank account — up to $250.000 — and only pay interest on the money you use. Although the application process may require them to know your business’s monthly revenue, it’s not the only eligibility factor important to lenders. They also evaluate your creditworthiness, time in business and business plan, and more factors that can sway the loan request in your favor.

Equipment Financing

Equipment financing is a valuable loan program for new businesses or startups to acquire equipment without a polished — or even existing — annual revenue statement. With equipment loans, a lender will front you 80% to 100% of the equipment’s value, and you’ll pay back the loan similarly to a lease, but at the end of the loan, you’ll fully own the equipment.

If you can prove to the lender the usefulness of the equipment for your small business, we will not be overly concerned about your business revenue. That’s because the equipment can work as collateral, but if you default on the repayment terms, the lender will move in and seize your equipment.

Invoice Financing

Invoice financing — also known as merchant cash advance — allows you to sell your clients’ unpaid invoices to an invoice factoring agency. The factoring agency will then front you a percentage of the invoice’s value, move to collect payment from your clients, and then return you the value minus a fee. With this method, you pay the value of the percentage the agency fronts you, plus interest.

Online Loans

Online lenders can offer you small business loans similarly to traditional banks and credit unions, but with the added benefit of speed and ease of application. Online lenders can be the alternative financing option preferred by many small business owners if they have been denied by traditional banks or credit unions. They can offer you short term business loans, working capital loans, traditional term loans, and microloans.

Although you’ll have a fast and easy application process, you must know that you’ll also have an increased interest rate and a reduced repayment term. But on the other hand, online lenders have experience underwriting business financing to borrowers with bad credit and new businesses without a substantial cash flow.

Steps to Improve Your Loan Eligibility

• Prepare Your Documentation: Even though your cash flow isn’t the best at the moment, having your business’s annual revenue supporting documents, business credit score statements, personal credit reports, bank statements, and many more types of documents can save you time and also allow you to reaccess what’s the best funding option for you.
• Have a Very Detailed Business Plan: Providing a lender with a business plan and showing what exactly you intend to do with the loan product or loan amount is essential. But what will put you on better terms is that you have a clear-cut, easy-to-understand plan for everything you intend to do.
• Improve Your Personal Credit Score: If you can, taking some extra weeks or months to pay down existing debt. It can help you get closer to a minimum credit score some lenders require. A good credit score will allow you to look for loan options that’ll offer you better terms in the future.
• If Possible, Provide Collateral: If you have real estate, equipment, or other assets that lenders might deem collateral worthy, it could be worthwhile to consider it. While it’s true you might be putting your workplace or essential equipment at risk, it’ll also heavily tip the loan request in your favor by securing it — it might even allow you to ask for better repayment terms.

Final Thoughts

While securing a business loan with low revenue can be challenging, it’s not impossible. Traditional lenders may prioritize strong financials, but alternative funding options like online lenders, microloans, and business credit cards provide flexibility for businesses with modest earnings. Strengthening other aspects of your application, such as credit score, collateral, and a solid business plan, can also improve your chances of approval.

Whether you're looking to stabilize cash flow or fuel growth, there are paths forward—even with lower revenue. Evaluate your options closely by comparing interest rates, avoiding potential origination fees, and choosing the right lender for your business’s needs.

FAQs about Getting a Business Loan With Low Revenue

Can I get a business loan with low revenue?

Yes, you can get a business loan with low revenue. You may also consider applying for business grants to get the funding you need.

What is the best startup business loan?

The best startup business loan depends on your specific needs, but SBA microloans and online lenders are often top choices for new businesses due to their flexible requirements and lower revenue thresholds. These options provide competitive interest rates and terms, making them accessible for startups with limited financial history.

What is the eligibility criteria for a low revenue business loan?

Business loan providers will look to see a solid credit score and well-detailed business plan. Additionally, you may have to pay a higher interest rate for a loan.

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