Revenue-Based Financing Part 6: Tips For Applying For A Revenue-Based Loan

Welcome to the final part of our Revenue-Based Financing series (though certainly not the last we’ll have to say on this topic!). In this post, we’re diving into essential tips for applying for a revenue-based loan: what to expect, what documentation to prepare, and other critical considerations throughout the process.

Documentation Requirements

If you’re not connecting your bank account via a platform like Plaid or Finicity, be prepared to upload at least 3 months of your most recent bank statements—though you might need to provide more:

1. Multiple Accounts? Prepare Statements for All of Them

If your business operates multiple bank accounts, upload recent statements for all of them. If you only send your primary account’s statements, you may receive a lower approval (or even a denial) as a result. Often, the lender can detect other accounts from your primary account’s transactions and will ask for them anyway.

2. Highly Seasonal Business? Submit 12 Months of Statements

If your business is seasonal, it’s best to upload a full year of bank statements. This gives the lender a clear view of your revenue patterns, including any seasonal ebbs and flows.

Bank Data Is an Imperfect Estimation of Your Revenue and Cash Flow

Remember, lenders are trying to predict your revenue and cash flow based on a historical review of your bank data. The better they can gauge these numbers, the more accurately they can approve a loan amount that fits your business.

While credits and debits are helpful proxies for revenue and expenses, they aren’t a perfect measure. Not every deposit represents revenue, and not every debit is an expense. Over the years, lenders have developed guardrails to avoid “double counting” transactions, such as funds transferred between business accounts to pay bills (like moving funds to a payroll account).

Financial Statements: When Do They Matter?

Most revenue-based lenders don’t request traditional financial statements unless you’re looking to access a “large” amount, generally between $150,000 and $300,000. At that level, be ready to submit additional documentation. Here’s what to keep in mind:

1. Your Large Offer Isn’t Real Until It’s Verified

That $250,000, $500,000, or other large loan approval is tentative until the lender completes due diligence and reviews your financials.

2. Avoid Submitting Outdated or Inaccurate Financials

If your financials aren’t up-to-date, don’t submit them. Even if you’re not borrowing, accurate financial documentation is critical for any business.

3. Consider Taking a Smaller Pre-Approved Amount

If your financials are weak but you need funding, it’s safer to accept the maximum pre-approved amount that doesn’t require additional financials. Submitting flawed financials for a larger amount can lead to a complete denial—potentially costing you any loan at all.

4. Be Prepared to Submit 2-3 Years of Recent Financial Statements

Most lenders will ask for the past 2-3 years of full-year financial statements. If they’re accurate, submit year-to-date financials too. If you’ve minimized tax liability aggressively, don’t worry—lenders understand this. But consider having financials prepared to show the “true” cash flow of the business.

5. Month-to-Month Breakdown for Variable Revenues

For seasonal businesses or those improving cash flow efficiency, submitting monthly financials may present a clearer picture. If you’ve been reducing expenses or improving efficiency, a monthly breakdown makes these improvements obvious.

6. Don’t Skimp on Proper Itemization

Lumped categories for revenue, expenses, assets, and liabilities signal sloppy accounting. Properly itemized financials demonstrate your professionalism and financial control.

Providing Bank Data via Integrators (Plaid, Finicity, etc.)

You’ve probably connected your bank account to apps like Venmo or Robinhood before—revenue-based lenders use similar platforms to collect data. Here’s how to ensure a smooth connection:

1. Check Compatibility with Your Bank

Not every bank connects seamlessly with every integration provider, and even banks that are generally compatible may have issues with multifactor authentication or security protocols. To avoid connection problems, check with your bank to ensure a smooth data flow.

2. Connect All Business Accounts, Not Just Your Primary

Most integration providers allow you to select which accounts to connect. Connect all business accounts, not just your primary one. The more complete your data, the clearer picture the lender will have of your business’s cash flow. Leaving out accounts can lead to incomplete insights, potentially lowering your approval amount.

3. Verify the Data Range

Integrations often provide only 30-90 days of transaction history, which might not meet lender requirements. Confirm with your lender how much data they received and be prepared to upload additional bank statements if needed.

4. Rely on Your Inside Sales Rep for Assistance

If you encounter connection issues, your inside sales rep can help troubleshoot and guide you through any extra documentation requirements—no brokers required!

General Tips

1. Be Prepared to Explain Large or Unusual Transactions

Lenders are trying to predict your revenue and cash flow trends moving forward, so if your account has any large, out-of-the-ordinary transactions—whether credits or debits—be ready to explain them. They’ll want to know if these were one-time occurrences or if they’ll be recurring. For instance, if you sold a property and deposited the proceeds into your business account, that’s going to raise eyebrows, and the lender will want to know the details. On the flip side, if you had a big one-time expense that won’t repeat, explaining it as a one-time event will help the lender paint a more accurate picture of your cash flow.

2. Stay on Top of Your UCC Filings

It’s important to be aware of any active UCC filings on your business before you apply for a loan. Ideally, you’ll want to terminate UCC filings for any financing you’ve paid off completely, as this shows lenders you’re on top of your obligations. For a more detailed explanation of UCC filings, check out our full post on the topic.

3. Prepare Documentation for Irregular Revenue

If your revenue isn’t consistent month-to-month, be prepared to provide forward-looking documents like accounts receivable aging reports, contracts, or purchase orders. While this is less critical for mom-and-pop retail businesses, it’s a potential game-changer for B2B businesses or companies operating on large contracts. Providing documentation of future revenue can demonstrate that, while your revenue might look unpredictable on paper, your pipeline is strong.

4. Keep Your Operating Structure in Mind

If your operating business has a complex ownership structure—such as being owned by a holding company, which in turn is owned by you—be prepared to explain this clearly. Gather supporting documentation, such as operating agreements or shareholder agreements, as lenders will need to verify the structure and ownership details.

5. Judgments, Tax Liens, and Bankruptcies

Revenue-based lenders are generally more forgiving of these issues than traditional lenders, but they can still impact your approval or the terms you receive. Lenders typically consider unresolved judgments, tax liens, and bankruptcies based on dollar amounts and recency. A good rule of thumb: if it’s serious enough to keep you up at night, it’s probably best to resolve it—whether by settlements, payment plans, or other means—before applying.

Conclusion: Wrapping Up the Revenue-Based Financing Series

We hope you’ve enjoyed this deep dive into revenue-based financing. At brokerfreecapital, we’re committed to helping small businesses understand and access the best financial solutions available. By following these tips, you’ll be equipped to approach lenders directly, bypass brokers, and secure funding at the best possible terms. With our guidance and Diogenes’ insight, you can confidently navigate the world of revenue-based financing and make educated funding decisions for your business.

Stay tuned for more content and insights from brokerfreecapital—we’ll continue bringing you the hard truths and actionable advice that set you up for success. Good luck, and remember: knowledge is power, and the power to cut out the middleman is in your hands.

Revenue-Based Financing Part 6: Tips For Applying For A Revenue-Based Loan

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