Getting a jump-start can be challenging for any small business that has been in business for less than two years or is not yet cash-flowing (pre-revenue). These businesses need funds to make money but lack the necessary fuel to fire up their fledgling businesses. The solution for pre-revenue companies is suitable small business loans. While it’s challenging to find appropriate loans, it’s possible by leveraging your credit history and time in business.
Typically, banks will automatically steer clear of start-ups or pre-revenue small businesses. However, online loan lenders such as BitX Funding have you covered. While you won’t get the same loan amount, APR, or terms as you would as an established business, you can get the funds you need to get started. This article will cover what a pre-revenue business is, its funding options, and how to get started today.
What is a Pre-Revenue Business, and What do They Need to Produce Revenue?
Businesses currently in the founder stage typically have less than two years in business and are known as start-up companies. Many start-ups have business plans to produce revenue after their founder stage but struggle to get over the initial hump. Businesses on track to make income but need funds to get to that point are known as pre-revenue. These businesses require access to small business loans but lack the time in the industry to meet approval by banks.
Pre-revenue businesses typically have a product or service ready to launch but need the necessary funds to cover the business’s equipment, real estate, payroll, and overhead costs. For example, you decide to open a restaurant in your local area. You have enough funds to establish a location, hire a staff and start your business. However, in the beginning, the cost of payroll, mortgage, equipment, and supplies equals or exceeds the revenue you bring in. The restaurant would be considered a pre-revenue business until it can begin bringing in a substantial profit.
The solution for pre-revenue companies is small business loans. With the right small business loan, companies can receive the funds they need to meet extra costs and invest them in making a future profit for their business. However, because traditional banks are reluctant to assist start-ups, pre-revenue companies need to look elsewhere. Fortunately, online loan lenders can get you the funds you need in days and assist you with the approval process.
Pre-Revenue Business Loan Options
While being a pre-revenue business can be challenging, it doesn’t mean you’re limited in funding options. Savvy business owners can get the funds they need to boost their businesses to success if they know their options. The most significant limiting factor for new or pre-revenue companies is a lack of reliable credit scores for their business. Typically, banks only lend to businesses that have been in business for 2+ years and base the terms on the business’s yearly cash flow and credit score.
However, there are several smaller loan options where you can leverage your credit score to receive funds your business wouldn’t be eligible for. You can also leverage potential sales in the future to receive funds now. Below are three attractive pre-revenue loan options for your small business.
Personal Loans for Pre-Revenue Businesses
- 0 Years in Business
- 700+ Credit Score
- 50k+ In Verifiable Personal Income
In many cases, the founder of a pre-revenue business has an excellent credit and business track record. However, because the company has just started and isn’t producing revenue, lenders are unwilling to lend to any risky venture. In these situations, the business owner can leverage their credit history with a personal term loan.
Rather than applying for a business loan using the business’ credit, the business owner applies for a much smaller personal loan that they then apply to their business. Pre-revenue business owners can still get up to 300k in funding provided they have a 700+ personal credit score. While it’s a personal loan, the funds can be put towards business expenses such as real estate, maintenance fees, payroll, and other overhead costs. This option is best for those with excellent credit who need a large influx of funds to start their pre-revenue business.
Unsecured Business Line of Credit
- 6-12 months+ in Business
- 600+ Credit Score
- Generating Yearly Income
Often, businesses need a little boost to their funds from time to time to keep their business going. A large loan isn’t required to cover costs, just enough funds to get through uneven cash flows. A business line of credit is a suitable pre-revenue option in these situations. Business lines of credit work similarly to credit cards, albeit with more funds and a higher interest rate because of the risk to the lender. You receive a fixed amount of funds you can draw from at any time and pay off as you can.
Lines of credit (LOCs) can be secured (require collateral) or unsecured. Unsecured loans have more strict terms and offer fewer funds than secured LOCs. However, the unsecured option is better for pre-revenue businesses because it requires no collateral. Business LOCs are best for pre-revenue companies that are ready to launch and need flexible funds to cover costs until they can begin making a profit.
Merchant Cash Advances
- 6-12 months+ in Business
- 500+ Credit Score
- Generating Yearly Income
Like a LOC, a merchant cash advance (MCA) isn’t as much a business loan as a flexible funding plan. MCAs work by giving a business a lump sum of cash that uses future credit card sales as collateral. You use the funds you need and pay back with sales from your company. Typically, you establish a fixed payment schedule with the lender and pay back a percentage of your total credit card sales towards the MCA at each payment period.
Depending on your credit history and time in business, lenders will factor the MCA to account for risk. For example, if you receive 100k in funds with a factor rate of 1.2, you will need to pay 120k to the lender. While you won’t receive as much funds as you would for a loan, MCAs still provide an excellent source of funds in some cases. This loan option is best for retail or restaurant pre-revenue businesses relying mainly on credit card sales.
Get Pre-Revenue Funds Today with BitX Funding
As start-ups flourish in the current post-pandemic landscape, many businesses find themselves in a pre-revenue atmosphere. These businesses are well on their way to success but need additional cash to start their venture. The funds are out there, but because of their fledgling nature, these businesses have difficulty getting funding from banks.
Luckily, online loan lenders like BitX Funding have plenty of pre-revenue funding options for your small business. While you may not get a full-term business loan in the first two years of business, there are many ways you can leverage your personal credit and future sales to receive funding. If you’re interested in pre-revenue small business loan options, contact BitX Funding today!