How to Get a Startup Business Loan with No Money

Starting a brand new business venture is both exhilarating and challenging. With one of the main hurdles for aspiring business owners being financing, loans are the best way to ensure starting capital, but how can you get a loan with no initial capital? There are a few options available to business owners who have no personal savings or necessary funding and we’ve discussed them in this article.

The Lending Landscape

Lenders such as banks often ask that borrowers have a proven track record, financial collateral and a steady revenue stream when evaluating their loan application. This approach helps lenders avoid risks but pose challenges to borrowers and startups lacking these credentials. Fortunately, there are alternative financing options out there that cater specifically to brand new business owners without adequate financial histories for traditional funding.

Financing Options for Startup Business Owners Without Capital

Microloans

For loans up to $50,000, microloans may be a great option as they are designed to support startups and small businesses. These loans are often organized and provided by nonprofit organisations and community lenders which focus on economic development.

The U.S. Small Business Administration (SBA) has programs that offer Microloans to help small businesses get started or expand. These loans can be a great option for entrepreneurs that need smaller amounts of capital to get their operation up and running.

Some Microloans still require some sort of collateral but the exact terms may vary depending on loaning amount and intermediary lender. You can read more about microloans on the official SBA page.

Equipment Financing

If your business venture requires any specific equipment, there are equipment financing options available with favorable conditions where the equipment itself serves as collateral for the loan.

These loans help business owners acquire access to funds for various machinery or technology without an upfront payment. That machinery then serves as collateral and needs to be paid off in full so that ownership can be transferred to the business owner. 

Business Credit Cards

For smaller funds, business credit cards can be a good choice and a great way to boost your business credit profile. They often come with rewards programs but remember to manage credit card debt responsibly to avoid high-interest charges and additional financial strain.

Personal Loans

Entrepreneurs have the option to take out a personal loan in order to fund their business. There’s no requirement for business revenue or collateral but the loan does rely on your personal credit history. With a personal loan, it’s essential to understand that you’re personally responsible for repayment, which can influence your finances or credit score negatively if your business venture underperforms and you have trouble paying back the loan.

Crowdfunding

Many potential backers exist on platforms like Kickstarter and Indiegogo who are more than willing to support the launch of a new product and help their creators raise the necessary capital to get it off the ground. Additionally, crowdfunding can serve as a great marketing tool, backed by social media, that generates interest and validation of business concepts before launch.

Angel Investors and Venture Capital

If you believe your business plan is compelling and offers high-growth potential, venture capitalists may be willing to fund it in exchange for equity or convertible debt. This means that you’ll be giving up a portion of the ownership and control of your business for substantial funding and valuable mentorship.

Peer-to-peer Lending

There are also many online platforms such as prosper.com that connect borrowers directly with individual lenders who are willing to fund startups. Usually these loans are more flexible than traditional bank loans but often come with high interest that suit the increased risk to lenders.

How to Increase Your Chances to Secure a Loan

A strong application is crucial when looking for funding for your future business. Regardless of the avenue/s you wish to pursue, lenders and investors want to see strong signals in order to gain confidence in their investment decision.

• Create a Comprehensive Business Plan: A well-structured business plan is key to attracting capital. It must include important elements such as your target market, revenue projections, strategies for growth and all of these elements must be presented clearly and professionally to bring confidence.
  
  
• Boost Your Personal Credit Score: If you don’t have business financials and are starting a new business, lenders will want to assess your personal credit history to get a better evaluation. If your personal credit score is high, you can expect more favorable loan terms even for your business ventures. Repairing your personal credit is also an option if it’s currently low, you can get assistance from credit repair companies such as the credit repair companies we’ve reviewed on our platform.
  
  
• Collateral and Personal Guarantees: If you’re in a position to do so, offering collateral and/or a personal guarantee can increase your borrowing capacity by additionally mitigating risk for the lender. This obviously puts your personal assets at risk if your business fails to repay the loan so it’s important to keep that in mind when opting for this route.
  
  
• Consider Co-Signers: You could consider involving friends or family as co-signers, preferably with strong credit histories behind them. This can enhance your application's credibility. Co-signers agree to repay the loan if you cannot do so which provides additional security for the lender.

Alternative Funding Sources

Aside from the traditional startup loaning options discussed above, there are a few more avenues worth mentioning.

• Business Incubators and Accelerators: These programs bring together entrepreneurs and are a great way to connect with fellow entrepreneurs, learn and broaden business contacts through workshops and seminars. Often, these programs provide funding, mentorship and resources in exchange for equity.
  
  
• Grants and Competitions: Organizations and governments often host competitions for startups in key industries or specific demographics. These funds don’t require repayment and can be a great way to boost your idea if it’s shown to be beneficial to the community or current social aspirations.
  
  
• Community Development Financial Institutions (CDFIs): These private financial institutions dedicate themselves to delivering responsible, affordable lending to low-income, low-wealth and other disadvantaged people in a given community. They can be a source of capital for new businesses which may not be eligible for traditional financing. Read more about CDFIs on their official website.

Your Repayment Strategy

With all of these options covered, the key question at the end of the day is repayment. Loans are a serious undertaking, no matter how large or small, and must be dealt with absolute seriousness in order to minimize the possibility of financial turmoil in the future, both business-related and personal.

With that said, make sure you’re absolutely confident that you’ll be able to repay a loan without having adequate capital to begin with. If you’re relying on your business success, there may be other factors which you cannot predict that can put you in a complicated situation in which you’re unable to repay your debt. Borrowing more to pay off existing debt is never a solution and it can trap you in a debt cycle.

Think about potential costs in the future which may come up unexpectedly and consider your buffer zone in terms of your financial and capital strength. If you’re starting a business with no money and require a larger sum, make sure to have a ‘worst-case’ scenario planned and be sure that it’s something you’re willing to stand by if it comes to that before embarking on the entrepreneurial journey.

Bottom Line

There’s no need to put creative endeavours or great ideas on hold just because of a lack of capital. Options exist out there that can get your business ideas off the ground, but be prepared for less favourable repayment terms and perhaps a financially riskier undertaking.

Make sure to evaluate your options completely, consider venture capitalists, grants and even co-signers before choosing a funding path for your startup, but also keep in mind that in the business world, many things may be out of your control and hard work may not be enough to help you repay these loans.