When wondering how to get a startup business loan with no money upfront, many business owners discover that it almost seems impossible at first. I understand this, but I need you to know that it is doable, despite being hard at first. If you can start an online business with no money, you can also get a business loan for your brick-and-mortar or online operation with no money as well.
Waiting to raise capital in order to get a substantial loan to further grow your business may not be an option, which is why securing a startup loan with no money could be the only way forward. In this article, I’ll suggest several ways to do it. I’ll also highlight how to find alternative financing and pinpoint the difference between money-down loans and collateral loans.
The important message I have for everyone who wants to lay the foundations of something big is simple: there are ways to find the startup capital needed even when you don’t have sufficient cash flow, revenue, business credit, collateral, or money to put upfront.
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Written by Martin Nikolaev: Point of Sale Expert
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- 8 Startup Business Loans With No Money Down
- How to Recognize Your Need for a Startup Business Loan with No Money
- Differences Between Collateralized and Down Payment Loans
- 4 Steps to Get a Startup Business Loan With No Money Down
- 6 Alternative Solutions for Getting Funds for Your Business With No Money
- Additional Tips to Consider When Searching for a Business Loan With No Money
8 Small Business Loans to Consider with No Money Down
In finding a startup business loan with no money down, the best-case scenario is to secure funding that poses the least risks for both lenders and borrowers. Of course, these loans need to be mutually beneficial for both parties.
Considering the above, here are 8 of the best ways to get a startup business loan with no money. These suggestions are not universal: some might work for you; others might not be possible. Still, there’s enough variety for all business types and needs to take advantage of.
1. Business Loans
Most startup business owners trip and fall with the annual revenue required by most lenders. This requirement is usually a year or more, but the good news is: there are lenders who would finance businesses with less than six months of history and even those that still have no revenue whatsoever.
To be eligible for a loan without having proof of revenue, then you need to substitute it with an extended business plan and all sorts of documentation suggesting that you will have the return you’ve planned for. This includes financial analysis and market evaluations, among a ton of other things.
There’s a type of business loan that can be tricky, although I would recommend this to be your last resort: business term loans. By going this route, you opt for a fixed amount of funds that you repay following a preliminary set payment plan. Most often than not, these loans don’t have the competitive interest rates you would hope for. However, they could be the most accessible financing option. Finding the shortest-term loan would be the best strategy here, as long as you can cope with the steeper monthly payments.
2. 7(a) Loans (SBA Financing)
The U.S. Small Business Administration, or SBA for short, has been helping business owners for decades, and they have solutions for startups that have no revenue yet but need short-term capital to take off.
The 7(a) loan program is a popular way for small business owners to receive financial assistance because it isn’t always associated with collateral requirements. This depends on the loan amount you need: in other words, loans above $25,000 need to be collateralized. The only downside to this option is the hectic application process. It could take weeks or even months before you’re approved, which could be devastating for your new small business.
On the upside, the interest rates are fairly low, and you could also opt for longer terms, meaning that the monthly payments would most probably be affordable even when you’ve thinned down your budget to the bare minimum. If you have the time needed, then this is a good option to secure a startup business loan with no money.
Keep in mind that SBA financing under the above-mentioned terms can’t be used for purchasing property or paying off other debts.
3. Business Credit Cards
Business credit cards have plenty in common with personal credit cards. For instance, they have the same purpose: to give you access to a particular amount of credit (limits may vary depending on your credit score and financing institution). Repaying the monthly balance is obligatory, of course.
The more unpaid balance, the higher the accumulated interest. If you fail to cover the balance for several months, interest will keep piling up. If you’re able to clear it completely, then you won’t pay any interest at all.
To qualify for a business credit card without having proof of revenue or any business history whatsoever, then you need to provide your credit score as a guarantee. The interest rates are expectedly high, but you’re likely to get an almost immediate stamp of approval, meaning that you’ll have the funds you need at your disposal almost instantly. The higher your personal credit score, the better the terms will be.
4. Equipment Financing
This option is not applicable in all cases, but it may be the best solution for some startup business owners. Equipment financing is the solution to choose if you need specific equipment that you don’t have the money to buy.
Lenders who finance such deals use the equipment as collateral. Once you get the loan, you can only spend it on the equipment you need. When you use it, you’re expected to have the revenue you need to pay off the loan.
Equipment financing poses fewer risks to lenders thanks to the collateral terms, which is why this option is often available for startups. The approval process is similarly complex to the one related to business loans in general. Plus, some lenders would not finance 100% of the equipment’s value.
5. Invoice Financing
Here’s a solution that’s not applicable to businesses that haven’t been launched yet. It’s a clever idea that’s practical, but not as mutually beneficial for the lender and the borrower as you’d wish. If you have invoiced receivables, then you can use them as collateral. You can source invoice financing from banks or private finance platforms.
In short, you trade the expected payments for money you receive now. Of course, you don’t get the full unpaid invoices amount, but the convenience of having funds now instead of waiting may be crucial.
When you need continuous cash flow to operate, invoice factoring can be the solution for you. It’s also one of the easiest ways to get a business loan with no money.
6. Merchant Cash Advances
Cash advance loans or merchant cash advances offer an easy solution to the no money-down loan requirement. This financing option doesn’t involve collateral, which is why it’s becoming an increasingly popular way to get funds. Merchant cash advances formed a $620 million market worldwide in 2021, and it’s expected to almost triple its size by 2027.
Merchant cash advances are fixed amounts of funds you could use to start your business or grow it. Such an advance is granted in exchange for a debit or a credit card income your business will have in the future. The advance is usually arranged directly with the debit or credit card company you’re working with and you receive the funds in the form of a preliminarily agreed percentage from your daily card purchases.
Once your business is up and running, you repay the lender by granting them a percentage of the credit card sales you make (from your perspective, it’s the purchases you make, from which the credit card provider makes its profit in the form of interest). This means that merchant cash advances can cost you dearly. Still, they are among the easiest sources of financing to access, and even a bad credit score would not be an obstacle.
7. Unsecured Line of Credit
This financing option comes with no loan amount and collateral requirements (the loan amount is limited, of course). It’s called unsecured due to the lack of collateral, which also makes it accessible by a wider audience. The amount you borrow can be renewed in portions or fully. If you take part only a part of the credit limit that you are eligible for and pay it off later, you will have its full amount available to use whenever you need it.
If you’re eligible for such a source of funding and you opt for it, you’ll soon discover that its revolving nature is a great perk for startups to use. Their typically limited (or non-existent) credit history would no longer be a problem. If you are at that point in developing your business, you might consider this option.
The fact that you won’t need to apply for a new loan when you need funds highlights the convenience of unsecured lines of credit. This makes it different from traditional business term loans, but the interest rates might make it less competitive. OnDeck is one of the best options for unsecured small business loans.
While the aforementioned SBA loans are also part of the microloans market, the latter forms a separate category I should mention. Most microloans are meant to be used by small business owners, hence the $50,000 limit most lenders offer. This funding option is often the solution to choose when qualifying for a traditional source of funding is out of the equation.
Microloans are ideal for starting a small online business and/or growing it. It will help you deal with all startup costs and also help you cover recurring expenses. The repayment process does not differ from a traditional loan, though the interest you’d owe is usually higher than the average rates.
There are different microloan lenders to choose from, such as government-backed institutions, private funds, nonprofits (such as LiftFund), and more.
When Should You Get a Startup Business Loan With No Money?
Some business owners think that getting a loan would be too hard and they wait until the time is right, not knowing when or if that time will come. In most cases, delaying the capital-raising stage may lead to a dead end. However, knowing when to seek funding is just as important as the loan terms you will receive. The following three situations are the most common moments when you should seek a startup business loan.
Launching Your Business
This is the first stage when you’re likely to need funding. Certain businesses do require a higher capital amount that’s more than just your ordinary savings. To be certain that you play your cards right, you need to ask yourself the following questions:
- Is there another way to launch your business without loaned startup capital?
- Have you gathered the data and made the calculations necessary to create a viable forecast for your business?
Growing Your Existing Business
In some cases, you may have started your business with a very small amount or no capital at all, but it now needs to expand. Again, you could assess your need for a loan by asking the following questions:
- How important are the resources you intend to borrow for the growth of your business?
- Are you certain that you’ll have enough turnover and profit to repay your loan according to its terms and conditions?
- Do you have enough contracts that will secure the above?
Mixing Personal and Business Finances
I know many entrepreneurs who often start their small business journeys by not differentiating their finances. They more or less fund their operations using their personal income or savings, which is a huge no-no. It’s a temporary solution that’s rarely a winning strategy. If you must resort to this method, then you’re better off finding a startup business loan, despite not having enough money (or none).
Small Business Loans with No Money Down: The Detailed Guide
I believe that there’s no such thing as a free loan. There has to be some kind of revenue for the lender. Most often, there’s a collateral requirement involved as well. This is a popular way for lenders to lower the risks they take. In other cases, the profit of the lender comes from the fees related to taking a loan. But asking for money upfront (usually a percentage of the loaned amount) is probably among the most popular types of guarantee lenders require when it comes to financing businesses.
Many startup owners and entrepreneurs would love to skip this part and receive capital with no money down. The larger the loan, the higher the chances of a money-down requirement because of greater risks. This is good news for small business owners because there’s a good chance that they will get the funding they need simply because it’s usually not a large amount.
Small businesses rarely need excessive funding to get their cogs turning, which allows for easier financing and, better yet, enough alternatives. But don’t be confused: “easier” doesn’t mean that it’s a walk in the park to get such a loan. Since lenders who decide to advance loans without collateral or money down have no real way of securing it, they have every right to evaluate potential borrowers and only choose the most trustworthy ones.
The approval process is not determined by someone’s likability or the interesting ideas they might have. This is an extended research process that involves several stages (financial management history, personal and business credit, projected profit, market analysis, and business plan). As a result, lenders determine the amount of the loan they believe would be the best for them and the most appropriate for the borrower. The interest rates may also fluctuate, depending on the borrower’s credibility.
In short, lenders prefer to receive a down payment on larger loans to reduce the risk, but they sometimes give smaller loans to startups and entrepreneurs after evaluating the risks and creating personalized offers based on several factors related to the borrower. This is how they avoid clients who default on their loans.
Loans with Down Payment Versus Loans with Collateral
Borrowers usually must provide money down or collateral to grab a loan. In the former case, the lender requires money upfront to reduce their risk, and the latter case requires physical assets instead of funds: it could be a vehicle, some type of property, or inventory, for example. Still, it’s unlikely for a startup business to secure such a loan, not to mention that most of the collateralized loans are usually bigger than what an entrepreneur would need.
If you don’t have enough capital to put upfront, but you’re willing to provide guarantees in the form of collateral, then you could be able to receive a loan from a bank or a private investor. Banks almost always provide businesses with the funds they need only if there is enough collateral provided.
Collateralized loans typically have lower interest rates due to the reduced risk for the lender. Also, small business loans typically involve collateral instead of money down, and the reason for that is obvious: more often than not, emerging business owners don’t have the capital to provide, but they’re much more likely to have collateral to offer.
How to Get a Small Business Loan with No Money or Revenue
Getting a small business loan with no money is the obstacle most business owners have faced in their entrepreneurial journeys. Not having the capital needed would mean putting an end to your new business before it even began evolving. On the other hand, any lender would like to make sure you’ll be able to repay the loan, and not having the guarantees needed may be an issue. It gets worse when you still don’t have revenue or when you have neither the money nor the assets to put down as collateral.
But there are ways out of such a predicament. It takes a bit of research, planning, and sometimes compromises, depending on what your situation and purposes are. For example, some lenders would not require you to prove you have money in your business bank account. They would be happy if you showed them that your personal credit is flawless, but this only counts for smaller loans.
Above all, it’s essential for you to understand every last requirement that your lender might have. This will give you leverage to prepare for the approval process and will also help you understand what it takes to be eligible for the loan you need. When you do this, you’ll also realize the risks you are about to take. Having a complete idea of the lending process and the payment plan, alongside the additional expenses, will help you determine whether you’ll be able to manage the monthly payments and never come near the moment you’d be forced to default on the loan.
4 Steps to Follow When Choosing the Best Option for a Business Loan with No Money
- Consider the differences between loan types. (Loans with a down payment depend on the type and purpose of financing, alongside the loan amount and financial state of the borrower, which means that you could be eligible for a no-money-down loan.)
- Choose the loan type that reflects your needs and capabilities. (Not going overboard is essential, so having a clear budget and factoring in every last detail to determine the loan amount you need is key.)
- Evaluate the assets you may use as collateral. (This includes your personal credit record, too.)
- Again, calculate the risks you are about to take. (Consider the loan terms, the interest rate, and other factors.)
If you find more than one suitable source of funding, then you should consider several factors that matter to you the most. Here’s a list of the important questions to ask yourself:
- Do you need a source of financing fast, or you can cope with a lengthy procedure, even if it takes several months?
- Do you need extended flexibility when it comes to payment terms, loan amount, and qualification requirements?
- Do you have collateral to offer?
- Are you willing to use your personal credit record to secure funding for your business?
- Would you be okay with accepting investors in your company from a very early stage, or even before launching it?
6 Alternatives to Getting a Business Loan with No Money
Trying to cope with and accept not having the startup capital you need, making the most of the situation, or waiting for better times are all alternatives to getting a business loan with no money. The common thing between them is that they are not the fruitful strategies you need.
Luckily for you, there are alternatives to the funding options I listed above. If none of them applies to your situation or you have other concerns related to them, then you should think about some of the 6 alternative solutions I’ll mention below.
1. Offer Equity
This is a zero-debt source of funding that might be the solution for you, but only if you’re willing to let investors own chunks of your company. This option is a working solution for startups that have yet to enjoy revenue, but it may not be acceptable if you are only willing to allow private investors to grab slices of your company once it’s worth a lot of money.
2. Apply for a Small Business Grant
There are two major issues to keep in mind: the extreme competition (it’s free money, after all), and the possible specific requirements you might need to comply with. There are government and privately funded grant programs, but the effort you could throw when preparing your application might not be worth the time, considering the limited number of beneficiaries.
3. Create a Savings Account
This might sound like an odd alternative, but it may be a working solution for you. If you save enough money over a short period, you might not need a loan or have just enough to opt for money-down financing. Small business loans with a down payment usually offer some of the best terms and interest rates.
4. Opt for an ACH Loan
Automated Clearing House loans are a possible (and fast) source of funding for business owners with no business credit. Many ACH lenders would require a credit score of 500 or more, but you could find an exception. Although this is a quick way to source funding, it can be costly. Interest rates are usually high (around and above 20%), not to mention the typical quick payback, non-flexible terms.
5. Choose Crowdfunding
Crowdfunding has been a popular way for startups to seek funding long before their official launch. Individuals interested in the products or services you promote in advance can invest in your business and provide you with the resources you need to launch it and make it happen. It might take a bit more time, but crowdfunding can give you everything you need to avoid getting a loan.
6. Ask Your Friends or Relatives for a Loan
This would probably be most people’s last resort, but if you have a strong relationship with your friends or family, they might fund your business. This means that you need to agree to their terms and conditions, and that might be an entirely new problem. It all depends on what you need and what they’d be able to provide you with.
Additional Tips and Advice on Getting a Startup Business Loan with No Money
I can’t stress this enough: being fully aware of all repayment obligations related to a particular form of financing is crucial. Getting a loan or other source of funding could be more or less easy, but the hard part comes when the time to repay it comes.
Determine How Much Funding You Need
Most financing options I listed above allow for a detailed picture: you will know what to expect before you agree and sign anything. While making sure you’re not going into huge debt, don’t forget to evaluate your own projected development and probable revenue. Being convinced that you will repay any loan is not enough. You must have the analysis and forecasts that back such a claim up.
When it comes to using personal resources to fund your business or using your credit score to finance it, there are plenty of things that could go wrong. If your plan fails and you’re not able to repay the business debt you’d find yourself in, then your personal credit score will plummet to the ground. Also, keep in mind that being able to repay a loan by strictly following all the terms could not make a difference in terms of credit score (ACH loans, for example). What I mean is: if you must get such a loan, at least pick an option that will up your score.
Carefully Assess the Best Loan Offer and Terms
I’ve already mentioned the simple way to assess your situation and choose the best type of funding, but once you determine it, you’d not be out of the woods yet. This would be the time to compare offers: not all lenders offer the same terms and conditions. Search for the offer with the lowest interest rates that also match all your other criteria (loan amount, payment terms, and so forth). I need to add that this is easier said than done, as the details of all the lenders you consider might be too vague or too detailed, making it hard to compare head-on. This is why hiring a consultant might be the best decision.
Bolster Your Credit Score
Additionally, make an effort to boost your credit score. When it’s low, you’d be stuck with a handful of expensive funding options. This is a huge no-no, and trying to get out of such a position is important. If you already have an enviable credit score and you wish to keep it that way, do yourself a favor and create an automated mechanism to take care of the repayment of your loan. This is how you can make sure that you’ll never miss the due date. A simple reminder would also do the trick.
Those who wonder how to get a startup loan with no money might expect to reach a dead end, but they’re likely to be surprised that there are several ways to find financing sources. The terms, conditions, and requirements vary a lot, but so do borrowers’ preferences, needs, and expectations. It’s all a matter of matching them to the fullest extent.
How to Get a Startup Business Loan with No Money: FAQ
How can I get a startup business loan without collateral?
First, you need to decide on the type of loan that would work best for you. Once this is done, you need to comply with lenders’ requirements, which most often include having a flawless business plan, a good credit score, and traceable financial management history.
Is getting a startup business loan with bad credit and no collateral a possibility?
Yes, it is. Qualifying for a loan while having bad credit is an option. Due to the higher risk for the lender, the interest rates will be higher. Term loans and equipment financing would be two of the best choices in such cases.
Is it possible to get a business loan without collateral from a bank?
Banks are unlikely to offer such a financial product, but you can always opt for an alternative institution when you seek funding, such as Kabbage.
Do you need a down payment when you choose equipment financing?
There might be a down payment requirement, but it depends entirely on the loan amount and the specific equipment that could serve as collateral. When there’s no down payment requirement, you will enjoy 100% of equipment funding.
How can I get a business loan with no money down?
A lot of business loans do not require money down, but some lenders require it as an additional guarantee. You can get a no-money-down loan by comparing the terms and conditions of different lenders.