Can You Get a Business Loan with Low Revenue?

There are specific requirements to be approved for any type of loan whether it is a student loan or a mortgage. Income, credit score, and existing debt plays a role. However, with small business loans, and especially with revenue-based loans, revenue is a critical requirement to be approved.

Gross revenue is important, it’s not evaluated on its own. Lenders also care about the source and how frequent the revenue is coming in. this makes it hard to say exactly what the number is that you need to qualify for a term loan.

The answer to the question can you get a business loan with low revenue is it depends. In this article we will go more into detail about how you can evaluate your own situation and see if low revenue will hinder you from obtaining the loan you are seeking.

Why Business Lenders Have Revenue Requirements

Every lender and loan requirements are different. Revenue range requirements from $10,000 to $30,000 per month and higher. Keep in mind that every lender has a different range, and these are general figures.

There are two reasons why there are revenue requirements. First, it weeds out potential financing applicants who, based on a rough measure (revenue), don’t have enough revenue to apply. The second reason is that it helps the lender determine if business generates enough money to handle your potential debt payments.

Revenue and the Debt-Service Coverage Ratio

Not only is gross revenue is a good indicator to pay off debt, it’s only part of the puzzle. Online lenders use the debt-service coverage ratio to measure your ability to pay which is:

Debt-Service Coverage Ratio = Net Operating Income ÷ Total Debt Service

This ratio measures the amount of money you receive for every dollar you spend. Typically, business loan lenders want to see a ratio between 40 and 50 percent.

Notice that the debt-service coverage ratio uses net operating income rather than revenue. By using your net operating income rather than revenue lenders get a better sense of how successful your core business is.

3 Options for Small Business Owners with Low Revenue

  • Wait to Apply for a Revenue-Based Business Loan: if your revenue is too low, you might be better off waiting to apply. As your business matures, you will be able to access the loans with better interest rates and terms.
  • Consider Funding Options that Don’t Have Revenue Requirements: these include merchant cash advances, accounts receivable financing, inventory financing, credit cards, and equipment financing.
  • Reduce Your Debt Loan: business lenders are interested in your debt-service coverage ratio. If you have low revenue, you can improve your coverage ratio by reducing your debt payments.

The Bottom Line

If you have trouble finding a working capital lender whose revenue requirements you meet, know you’re not alone. Especially for relatively mature small businesses, financing is the primary challenge. Remember to borrow responsibly and monitor your debt-service coverage ratio if your revenue is too low. Once you improve that, you will have more options available.