Can an unprofitable company get funded?

Yes, if revenue is real and recurring. Revenue-based underwriting reads deposits rather than profit, which is why it reaches software businesses a bank will not.

Is this the same as venture debt?

No. Venture debt generally requires institutional backing and comes with covenants and often warrants. Revenue-based funding needs neither and is faster, but is more expensive per dollar.

Does annual billing help or hurt?

It helps the amount and complicates the pattern. Large annual deposits show strong revenue but leave quiet months, so submit twelve months rather than six.

Guide

Why do banks turn down technology companies for loans?

Because software businesses are asset-light and frequently unprofitable on purpose, which fails a bank's model on both counts. Recurring subscription revenue, though, is some of the most predictable income any underwriter sees — and a funder reading it can lend where the balance sheet says no.

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Why the bank says no

There is nothing to secure. The asset is code and a customer base, neither of which a bank can value or recover.

Deliberate unprofitability is a strategy in software and a decline in a credit model. Reinvesting every dollar into growth is exactly what an underwriter looking for profit will reject.

Founders are often thin on personal collateral too, so a personal guarantee does not bridge the gap the way it might elsewhere.

What each underwriter weighs

The same business, read two different ways. A bank decision is built on credit, collateral and filed accounts; a revenue-based funder builds it on the money moving through your account. That is the whole reason a bank decline says very little about whether you can be funded.

What a revenue-based funder reads instead

Subscription revenue is remarkably good underwriting material: contracted, recurring and visible in deposits month after month.

Churn is the number that actually matters. Predictable revenue with high churn is not predictable, and a funder will look at retention before size.

A line of credit generally fits better than a lump sum, because the need is usually a timing gap around annual contracts and hiring rather than a single purchase.

What to have ready before you apply

Six months of business bank statements.

Monthly recurring revenue and retention, which are the two numbers that move the offer.

Whether contracts bill monthly or annually — annual billing changes the deposit pattern considerably.

Sources

Consumer Financial Protection BureauFederal consumer-finance regulator. Publishes guidance on credit terms and disclosure.
U.S. Small Business Administration — LoansFederal loan programmes, eligibility and what the SBA does and does not guarantee.

Why do banks turn down technology companies for loans?

Why the bank says no

What a revenue-based funder reads instead

What to have ready before you apply

Related questions.

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