A pre-revenue startup with signed contracts has more financing options than the usual advice to raise equity suggests. Some lenders will underwrite the contract and the customer behind it, which can carry an application when the company has no sales history. What fits depends on timing: before work starts, during performance, or after an invoice goes out.
Why a signed contract isn't a receivable yet
Lenders separate the right to be paid someday from money a customer owes today. Article 9 of the Uniform Commercial Code defines an account as "a right to payment of a monetary obligation, whether or not earned by performance" (UCC 9-102, checked October 6, 2026). As we read it, that wording lets a lender take a security interest in payments due under a contract you haven't performed yet.
A lender can claim collateral without advancing against it. The OCC's Comptroller's Handbook on asset-based lending (version 1.1, checked October 6, 2026) lists "unbilled accounts receivable" among the receivables commonly designated as ineligible for a borrowing base, and in market practice factors generally buy invoices for work the customer has received and accepted. Until you bill, the customer can still cancel, reject the work or dispute the price, so the money has to come from products built around performance risk.
What financing options does a pre-revenue startup with signed contracts have?
The options line up by stage. Approval and terms vary by lender, but each looks at something other than trailing revenue.
| Stage | Option | What it funds | What carries the decision |
|---|---|---|---|
| Before work starts | Customer deposit, milestone billing, supplier terms | Up-front costs, with no debt | Your negotiating position |
| Before delivery | Purchase order financing | Supplier's cost of goods for a confirmed order | Customer's credit, supplier reliability, your margin |
| During performance | Contract financing, or an SBA Contract CAPLine | Labor, materials and overhead tied to one contract | Contract terms, customer's credit, owners' track record |
| Broader startup costs | SBA 7(a) term loan or microloan | Working capital, inventory, equipment | Projections, owner equity, guaranties |
| After invoicing | Invoice factoring or invoice financing | Cash tied up in billed, accepted work | Customer's credit and payment record |
Contract financing is a market term with no single legal definition. It usually means a loan or line advanced against the cost of performing a specific signed contract and repaid from that contract's payments. How much a lender advances, and whether it will fund a company with no completed jobs, differs widely.
In market practice, having no profit yet tends to weigh less here than on a conventional term loan, because the lender is mostly judging one transaction's margin and the customer's ability to pay. A thin margin still hurts, leaving no room for financing costs or an overrun. A general business line of credit is usually harder to get this early.
What lenders check: the customer, the contract and you
Lenders that fund against contracts typically run some version of this review.
| What they read | What they look for | Why it matters |
|---|---|---|
| Customer's credit | An established company or public body that pays on time | The customer's payment repays the advance |
| Cancellation | Termination for convenience, and what the customer then owes | A cancelled contract can leave costs with no payer |
| Milestones and acceptance | Defined deliverables, a sign-off process, billing tied to each stage | Vague acceptance terms delay invoices and invite disputes |
| Payment terms and offsets | Net days, retainage, deductions, amounts you owe the customer | The OCC handbook notes a customer you also buy from can "set off" the two debts and pay only the net amount |
| Assignment | Whether payments can be directed to the lender | Lenders typically want to be paid directly |
| Ability to perform | Owners' experience, staffing, supplier quotes, a line-item cost schedule | Payment usually isn't due until you deliver |
Under UCC 9-406, a customer can discharge its obligation by paying you only until it receives an authenticated notification that the amount due has been assigned and is to be paid to the assignee. The same section makes a contract term that prohibits assignment of an account, or requires the customer's consent, generally ineffective, subject to listed exceptions. State versions differ, and federal contracts have their own assignment rules under the Assignment of Claims Act of 1940, so have a lawyer review the clause first.
How SBA Contract CAPLines and the Working Capital Pilot treat a startup
Participating lenders make these loans, with an SBA guaranty on part of the balance. The rules below come from SOP 50 10 8.1, effective October 1, 2026 (Section B, Chapter 4, 7(a) CAPLines, and Appendix 17 for maturities), as read on October 6, 2026.
- Size and term: up to $5,000,000, with a maximum maturity of 10 years.
- Eligible costs: proceeds may only finance the costs of specific contracts, including allocable overhead or general and administrative expenses. They can't cover mark-up or profit, fixed assets, refinancing of existing debt, or "a contract in which significant performance has already begun."
- Sizing: for one contract with multiple payments, the loan amount is what's needed to cover "20% over the greatest cash deficit projected" for that contract.
- Assignment: before the first disbursement, the customer must be advised in writing that an assignment of the contract proceeds is required and must acknowledge it in writing, unless at least two listed exception conditions are met.
The hurdle for a new company is eligibility. The applicant must "demonstrate the ability to operate profitably based upon the prior completion of similar contracts." As we read it, the Contract CAPLine eligibility list names no minimum time in business (the Seasonal CAPLine list requires at least 12 calendar months in operation), and the chapter tells lenders to analyze new businesses on detailed projections that "reflect positive cash flow within 2 years." The SOP doesn't say how a company with no finished contracts of its own would show prior completion, so a start-up should treat this test as a likely barrier. The list also requires the ability to bid, project costs and perform the work, plus the financial capacity and technical expertise to finish on time and at a profit. Whether an applicant passes is the lender's call, or SBA's when the loan is processed without delegated authority. A Working Capital CAPLine requires an applicant that generates accounts receivable or has inventory, so it generally fits once billing has begun or inventory is on hand.
The 7(a) Working Capital Pilot offers monitored lines of credit up to $5,000,000 for up to 60 months, for businesses wishing to "fulfill large contracts or projects and/or borrow against accounts receivable or inventory," according to SBA's 7(a) loans page (checked October 6, 2026). The page also lists "at least one-year of operating history," which a first-year company can't show yet. SBA's July 2024 Federal Register notice set the pilot to run through July 31, 2027, and pilots can change or end, so confirm it's still open.
A 7(a) term loan can fund a start-up on projections, with signed contracts as evidence for the revenue line. Section B, Chapters 1 and 2 of the SOP require a Start-Up Business to inject at least 10% of total project costs under Standard 7(a) and 7(a) Small. Projections must show debt service coverage of 1.15 within 2 years of funding for Standard 7(a), or 1.10 within one year for 7(a) Small term loans of $350,000 or less. For smaller needs, SBA microloans go up to $50,000 through nonprofit intermediary lenders.
Worked example: a $240,000 contract, month by month
Every figure in this example is an assumption, and none is a quote or a typical market term. A new company signs a $240,000 installation contract with an established corporate customer. Costs total $200,000: $50,000 of equipment for the customer's site, bought from a supplier in month 1, plus $30,000 a month of labor and contract overhead for five months. The customer is billed $60,000 on the last day of months 2 through 5, after signing off each milestone, and pays 30 days later.
| Month | Cash out | Cash in | Month-end position | What fits |
|---|---|---|---|---|
| 1 | $80,000 | $0 | -$80,000 | PO financing for the supplier order; contract line, owner cash or deposit for labor |
| 2 | $30,000 | $0 | -$110,000 | Same; first invoice issued |
| 3 | $30,000 | $60,000 | -$80,000 | Billed work: factoring or invoice financing |
| 4 | $30,000 | $60,000 | -$50,000 | Same |
| 5 | $30,000 | $60,000 | -$20,000 | Same |
| 6 | $0 | $60,000 | +$40,000 | Final payment |
Measured at month-end, the greatest cash deficit is $110,000, reached at the end of month 2 before any customer money arrives: the $50,000 supplier order plus $60,000 of labor and overhead. Month-end figures can hide a deeper dip inside a month. If month 3's $30,000 goes out before the first payment lands, the balance touches -$140,000, so run your own projection week by week.
- Factoring can't fill the first two months. No invoice exists until the end of month 2. If a factor then advanced an assumed 80% of each accepted invoice, $48,000 would arrive the day the first one is issued and the month-end position would be -$62,000 instead of -$110,000. The other $12,000, less fees, would be released when the customer pays.
- The pre-billing gap splits by cost type. A purchase order funder may pay the supplier directly for the $50,000 of equipment, if it funds goods that are installed and not simply resold. The $60,000 of labor and overhead needs a contract-based line, owner cash or a deposit.
- Contract terms change the size of the gap. A 10% deposit at signing ($24,000, credited against the final invoice) would cut the month-end peak to $86,000.
Under SBA's sizing rule, a Contract CAPLine for this job, if the company qualified, would be 20% over the greatest projected deficit. On the month-end figures that is $110,000 x 1.20 = $132,000, and a weekly projection showing a deeper low would raise it. Only the $200,000 of cost is eligible, because the $40,000 margin is profit. Interest and fees are left out because pricing varies by lender, so add each quoted cost to the cash-out column and confirm the margin holds.
Documents to gather before you apply
- The signed contract or PO, with any master agreement and change orders
- A line-item cost schedule for materials, labor and overhead, with profit left out (required for a Contract CAPLine)
- A month-by-month cash flow like the table above
- Supplier quotes and the customer's legal name, billing contact and payment history
- Owners' resumes, records of similar jobs at earlier companies, and personal financial statements
Owners are usually asked for a personal guarantee, and the SOP (Section A, Chapter 5) requires an unlimited full guaranty from any individual owning 20% or more of a 7(a) applicant. Lenders assess credit and repayment ability along with the contract. EQ Funding is a marketplace, so one application is routed to lenders in its network that compete for the deal, and those lenders make the credit decisions. Weigh each offer's dollar cost against the contract's margin with our guide to comparing business loan offers.