How much revenue do you need to get a business loan?
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The annual revenue you need to get a business loan varies from lender to lender.
There are many funding options available for small businesses, and the amount of revenue you need to qualify for each is different. The bare minimum annual revenue for traditional funding options is $10,000, though most lenders set higher requirements. However, if you don’t have that much revenue, you still have options.
How much do I need to make to get a business loan?
It’s important to understand that a wide variety of funding options are available for small businesses. Eligibility factors vary by lender, loan type and what you will use it for. Looking at business loans based on revenue will point you toward the options available to you.
The very lowest a lender will require for a conventional business loan is about $10,000 in yearly revenue. However, most lenders require higher annual revenue.
Consider each option available to you and the revenue you need to qualify to find the business funding option that works for your business.
Here are some typical revenue requirements broken down by loan type.
|Loan type||Annual revenue required|
|Commercial real estate loan||At least $50,000 annually|
|SBA loan||Varies by lender and loan type but must demonstrate an ability to pay back the loan|
|Term loan||At least $100,000|
|Line of credit||At least $36,000|
Note that different types of lenders also tend to have differing revenue requirements. Banks often prefer to work with well-established businesses, so their revenue requirements tend to skew higher. By comparison, many online lenders work with startups and smaller businesses, so their requirements may be lower.
Why lenders care about your revenue
While there are a number of factors that lenders consider when you apply for a loan (like business credit), revenue is an important one.
Your revenue is the amount of income your business makes. A lender needs to see that you can pay back the loan. The more consistent revenue the business has, the more likely it is to make timely payments on a business loan.
If a business is a startup that hasn’t yet made revenue or has low revenue, the lender will see the investment as high-risk. This makes them much less likely to give you a loan and more likely to give you high interest rates if they do.
Conversely, you can get lower interest rates on your loan with higher revenue because the lender feels you are less risky.
The debt-service coverage ratio
Gross revenue is one important factor for commercial lenders, but they also want to see how much money the business owes compared to how much it makes. The debt-service coverage ratio measures a business’s ability to cover all its outstanding debts with its income. It is the ratio of a business’s net operating income to all its outstanding debts, including principal, interest and lease payments.
Why does it matter? In addition to revenue, lenders will look at a business’s DSCR to determine eligibility for a loan. A DSCR of less than one means the business has a negative cash flow. Typically, commercial lenders went to see a DSCR of 1.25 or higher before giving the business a loan.
DSCR is calculated by dividing the total outstanding debts by annual income. For example, if a business has $100,000 in yearly income and total outstanding debts of $80,000, the DSCR is 1.25.
How can I get a business loan with no revenue?
If you don’t have the revenue to qualify for a business loan, you may still be able to get one.
Make a case to the lender for why your business is a good investment. Gather documentation to show your experience in the field. Present a rock-solid business plan. Demonstrate you are serious about your business and have a plan to make money to show a lender you are more reliable than your revenue indicates.
This strategy won’t always work, though. If you can’t find a lender who will work with you on a startup loan, you may need to consider other options.
Business loan alternatives
Traditional lenders will likely require the business to have revenue in order to give you a term loan. However, there are unconventional funding options if you need cash for your business but haven’t started bringing in revenue yet.
- Angel investor: An angel investor is an individual willing to give you the money you need for your business in exchange for equity in the company.
- Venture capital: Venture capital firms are another option if you don’t want to have to pay back a loan. Venture capital firms will review your business plan and valuation to determine if they want to invest in the company in exchange for becoming a part owner.
- Crowdfunding: Using a crowdfunding platform allows individuals to donate small or large amounts to your business. In exchange, businesses usually gift exclusive gifts, benefits or company equity.
- Business line of credit: A business credit line allows you to borrow up to a specified limit, pay it back, and continue borrowing up to that limit. It works like a credit card, but a line of credit is typically for larger amounts. There are both secured and unsecured lines of credit. Note that lines of credit also often have minimum revenue requirements.
The bottom line
Showing that your business can make money helps convince lenders to give you a loan. You also need to know your DSCR to show that your business will be able to make payments. Before you talk to a lender about getting a business loan, make sure you know your DSCR and total revenue for the last two years.
There are other business funding options if you don’t yet have revenue. Don’t give up if you don’t qualify for any business loans. Explore your options to find other options that will work for your business.