Software and AI companies have a specific cash flow problem, and it is not the one outsiders assume. The problem is rarely demand. It is that costs are monthly and immediate — compute, API spend, infrastructure, engineering payroll — while revenue arrives on enterprise procurement timelines. A signed six-figure annual contract is an asset. It is not cash, and it will not be cash for 60 to 90 days after the invoice, which itself waits on a kickoff, a PO number, and a vendor onboarding process nobody warned you about.
Why the gap is worse for AI companies specifically
Traditional software had near-zero marginal cost per customer. AI products do not. Every inference has a cost, which means growth in usage produces growth in spend immediately while the revenue from that usage bills in arrears — monthly at best, annually at worst if the contract is prepaid on the customer's schedule rather than yours. Add training runs, GPU commitments, and enterprise pilots that consume real compute before anyone signs, and you get a business where scaling usage can widen the cash gap even as unit economics improve. Founders describe this as growth being expensive; mechanically it is a timing mismatch, and timing mismatches are a financing problem rather than a business-model problem.
Why banks decline profitable software companies
Bank underwriting wants collateral, multi-year tax returns showing profit, and debt-service ratios computed from historical net income. A software company reinvesting everything into growth shows thin or negative net income by design. Its main assets are contracts and code, which banks do not collateralize well. And time-in-business screens eliminate most companies before the financials are even read. None of this is a judgment about whether the business can support a payment — it is a checklist that software does not fit.
The non-dilutive options that actually fit
Revenue-based financing provides capital repaid as a share of revenue or a fixed periodic remittance, underwritten on deposit history rather than profitability or investor backing. It flexes with your business and funds in days rather than months. Receivables-based funding advances against issued invoices, which fits companies with signed enterprise contracts waiting on procurement — the receivable is the asset, and it is a good one when the customer is creditworthy. Venture debt is cheaper but generally requires an existing institutional round and comes with covenants. Equipment financing covers hardware where you own it rather than rent it. Each of these leaves your cap table alone.
What underwriters look at
For revenue-based structures, the deposit record is the underwriting: consistency month over month, direction of trend, average daily balances, and whether the account runs negative. Revenue concentration matters — a company where one customer is most of revenue is a different risk than one with fifty. Contract quality matters for receivables structures: who owes, how creditworthy, on what terms, and how reliably they have paid before. What matters far less than founders expect: profitability, credit score, and whether you have raised institutional money.
Sizing it correctly
The discipline is the same as anywhere else, and software founders are not immune to getting it wrong. Model the remittance against your worst recent month, not your average. Compare the combined obligation against average daily deposits — a healthy business can support a meaningful share, but a company servicing multiple overlapping obligations against revenue that has not accelerated is in a spiral regardless of how good the product is. Size the capital to a bounded, dated need with measurable payback, and treat it as a bridge rather than runway. Runway is what equity is for.
Y Millennial Funding is a direct funder providing non-dilutive, revenue-based capital to software, AI, and technology services companies doing $25,000 or more in monthly revenue. Same-day decisions for eligible applications. Not all applicants qualify.