Guide · Why banks decline, by industry
Why do banks turn down technology companies for loans?
By Alex Makowski Updated
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.
In this guide
- 01Why the bank says no
- 02What a revenue-based funder reads instead
- 03The alternatives for a technology company
- 04What to have ready before you apply
- Won't affect your credit
- Free, no obligation
- Up to $500K
01
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
02
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.
03
The alternatives for a technology company
A line of credit fits recurring subscription revenue with uneven cash needs, such as an annual hosting bill or a hire ahead of a contract, because you pay only for what is drawn.
Funders that read subscription revenue directly can lend where the balance sheet says no. A company planning to run at a loss for years is usually raising equity rather than borrowing, and the two should not be confused.
04
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.
Written by
Alex Makowski, Owner
Alex Makowski owns and runs Business Loans for America and has been placing funding for U.S. small businesses since 2021. Businesses he has worked with have secured $50M+ in financing across 1,200+ placements. He writes and reviews every guide on this site.
FAQ
Related questions.
- 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.
Guides
More on why banks decline, by industry
Salons & beauty
Small, leased, and asset-light on paper.
Gyms & fitness
Heavy fixed costs against cancellable memberships.
Start here — any industry
The five reasons that recur whatever the trade, the alternative each one points to, and what to do the week after a no.
Construction
Revenue arrives in lumps tied to progress draws.
Restaurants & food service
Declined on the category before the numbers are read.
Retail
Cash tied up in stock reads as poor liquidity.
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.
One application, every lender we work with
Find out what you qualify for before you need it.
Eleven questions, about two minutes. You see offers side by side and take one, or none.
- Won't affect your credit
- Free, no obligation
- Decisions usually inside 24 hours
- Up to $500K