Startup Business Loans: What Lenders Want to See in Your First Two Years

Founders who search for startup business loans may expect to find a product built for companies like theirs. What they find instead is a market that prices risk largely by two things a new company does not have yet: time in business and a record of revenue. That can feel unfair when the idea is strong and the first customers are signing, but it follows a pattern lenders have watched for decades.

Federal data shows why. Among business establishments that opened in 2022, more than one in five did not survive their first year in every one of the nation’s nine census divisions, according to the Bureau of Labor Statistics. A lender looking at a three-month-old company is looking at a borrower whose odds are still taking shape.

A young company is not locked out, though. The financing that can open up first is tied to something other than the founder’s track record: the company’s revenue, the equipment it buys, or the invoices its customers owe. Funding marketplaces such as FundBetter offer several products of that kind, and its explanation of how factoring approval leans on your customers’ credit is a good example of a lender looking past a short history to the strength of the businesses behind your receivables.

Why lenders care so much about time in business

Small business lenders outside the venture world underwrite largely on history. They want to see bank statements showing deposits arriving month after month, a balance that does not routinely dip toward zero, and enough revenue to cover a new payment comfortably. A company in its first few months simply has not produced that evidence yet.

When the business record is thin, the founder becomes the underwriting. Personal credit, personal assets and personal savings carry more weight, and you should expect to be asked for a personal guarantee on early financing. That is worth understanding before you sign, because it means a business setback can follow you home.

A lender is repaid from cash flow, and cash flow is the one thing a startup cannot show in advance. The caution says nothing about the quality of the idea.

Before revenue: what is realistic

Before steady sales arrive, the options narrow to sources that lean on you rather than the business. This is the stage for founder savings and money from friends or family, with the obvious need to put any family arrangement in writing.

The SBA’s microloan program is designed to help small businesses start up and expand. Loans of up to $50,000 are made through nonprofit, community-based intermediary lenders, which make the credit decisions and set the terms, with repayment periods of up to seven years.

The SBA’s flagship 7(a) program has no minimum time in business set by the agency itself. In practice, SBA rules require a startup to put in equity of at least 10 percent of total project costs, and the participating lender still has to be satisfied with your plan, your credit and the collateral available, so a pre-revenue 7(a) loan is possible but demanding.

What to avoid at this stage is borrowing against revenue you do not yet have. Expensive short-term money taken to cover a gap that never closes can quickly turn a promising start into a debt problem.

Around six months with steady sales

Once a business has roughly half a year of consistent deposits, revenue-based working capital starts to come into view. Business lines of credit and short-term loans underwritten on recent bank statements weigh the pattern of your deposits heavily alongside time in business.

Thresholds vary by funder and by product, with no single industry rule. FundBetter’s own starting points, for instance, are around six months in business, roughly $15,000 or more in monthly revenue and a personal credit score near 500. Those are its criteria rather than general lending requirements, and they differ from product to product.

Invoice factoring deserves a closer look if you sell to other businesses. Imagine a hypothetical two-founder software consultancy in Austin, eight months old, billing $30,000 a month to three established clients on 45-day terms. A bank may hesitate over the company’s age. A factor focuses on whether those three clients pay their bills, and can advance a large share of each invoice soon after it is issued.

Watch concentration, though. Factors set limits on how much of the advanced total can come from any single customer, and FundBetter notes those limits often sit around 30 percent to 40 percent. With only three clients, at least one will account for a third or more of the Austin firm’s billing, so a cap at the low end of that range would leave part of that client’s invoices outside the facility, which is worth knowing before you plan around the full amount.

One year, two years and the path to cheaper money

At the one-year mark, more doors open. Equipment financing becomes more accessible, since the machine or vehicle itself secures the loan, and terms can be matched to the useful life of the asset. A full year of statements also shows any seasonal swings, which helps a lender read a slow month in context.

Two years in, the tax returns and financial statements that banks and SBA lenders use to measure historical cash flow start to tell a fuller story. That can be when the cost of capital falls meaningfully, and when it makes sense to look at refinancing any expensive early debt into longer, cheaper terms.

The habits that get you there are unglamorous. Keep a dedicated business bank account from the first day, run every sale through it, avoid overdrafts where you can, and keep bookkeeping current. When the day comes to apply, the clean record you built is the strongest part of the application.

Frequently asked questions

Can a startup get a business loan with no revenue? It is difficult but possible. Options include SBA microloans through nonprofit intermediaries and SBA 7(a) loans, which for a startup require an equity injection of at least 10 percent and a lender persuaded by your plan, credit and collateral. Revenue-based financing needs several months of deposits to work from.

How long do you need to be in business to get a loan? There is no universal answer. Requirements depend on the lender and the product, and some revenue-based programs start around six months, while equipment and bank financing may look for a year or more.

Does invoice factoring work for a new business? It can, if you invoice established business or government customers with good payment histories. Factors weigh your customers’ credit heavily, though a factor may still set its own minimum time in business. FundBetter’s is six months.

Will checking my options hurt my credit score? Not always. Some funders check options with a soft inquiry that does not affect your score and run a hard inquiry later, with your permission, only if you move forward. Ask each lender which kind of check it uses.

What should a founder prepare before applying? Several months of business bank statements, a current profit and loss statement, your business formation documents and tax ID, and a clear explanation of what the money will do and how it will be repaid.