Entrepreneurs can get excited about starting a new business, but when it comes to securing funding, it can be a journey unique to new businesses. Getting a startup business loan with nothing in the bank is one of the biggest stumbling blocks aspiring entrepreneurs have to overcome.
Traditional lending institutions typically need a large amount of capital or collateral, but that doesn’t mean you don’t still have options if you are in the early stages of business without a big pile of money lying around up front. So, how to get a startup business loan with no money?
How to Get a Startup Business Loan with No Money | 5 Steps
As an expert of 8 years, I’ll show you different strategies and tips for how you can get funding for your new business even if you don’t have a ton of money to put down.
1. Learn the Significance of a Business Plan
Before starting to fund your startup or secure a startup loan, you need to have a sound business plan. A well thought out plan not only shows potential lenders how you plan on being successful, but also helps you create a vision and goals for your business.
What to Include in Your Business Plan:
- Executive Summary: Your business–mission, product or service, target market and goals.
- Market Research: An in depth analysis of: your industry, competitors and potential customers.
- Financial Projections: Income, expense, and cash flow projections over a period of at least three years, on a monthly basis.
- Funding Requirements: How much money you need, why you need it, and how you plan to use the money — in a clear way.
Having a good business plan that makes sense — and that’s organized too — demonstrates that you are serious about starting up and helps lenders believe that if you borrow money you’ll be able to pay it back, even if you don’t have cash down to put up.
2. Explore Different Types of Startup Loans
Getting a startup business loan without money is very possible so long as you look at several financing options and pick the one that suits your business needs. Below are several common types of startup loans that may be available to you:
SBA Microloan Program
A microloan is offered by the U.S. Small Business Administration (SBA) to small businesses which need smaller amounts of money to start the business. These are great for entrepreneurs with little personal money.
- Loan Amount: Up to $50,000.
- Eligibility: Specifically businesses with less than two years of operation and good credit.
- Terms: The loan terms are typically 6 years or less and interest rates run from 8% to 13%.
With an SBA microloan, you have the good fortune of lower interest rates than other types of financing, and the SBA guarantees a percentage of the loan which decreases risk for lenders.
Personal Loans for Business
Even if you don’t have collateral or business assets, you can still get a personal loan to fund your startup. Unlike traditional business loans, that are based on your business’ financial health, personal loans are easier to qualify for (in many cases) because they depend on your creditworthiness instead.
- Loan Amount: Depends on lender (usually no more than $50,000).
- Eligibility: Need a good personal credit score (usually 600 or over).
- Terms: Interest rates differ and repayment periods vary from 2 to 7 years.
Personal loans shouldn’t be secured by business assets or collateral, rather they place your personal finances at risk if you can’t repay the personal loan. So, it’s important to be cautious with this option.
Also Read: How to Stop Discord from Opening on Startup: A Comprehensive Guide
Crowdfunding and Peer-to-Peer Lending
We then look at crowdfunding platforms like Kickstater, GoFundMe, and Indiegogo, which let entrepreneurs garner funds from the public to fund their startup. When you have an innovative product or service and a clear market for it, these platforms can really be useful for a business.
- How It Works: There are a number of crowdfunding websites where you pitch your business idea online and offer to pay backers with rewards or incentives.
- Eligibility: While it’s easy to run a crowdfunding campaign, you actually need a good pitch and marketing plan behind it.
- Benefits: You don’t even need collateral and you don’t have to repay the money back if the campaign succeeds.
LendingClub or Prosper are two of the peer to peer lending platforms that allow borrowers to connect with individual lenders to lend money. Most often, this is a more flexible option than with traditional banks.
Online Business Loans
There are several online lenders in particular that focus on lending to startups and small businesses. They usually have more lenient qualification requirements than banks and the application speed is normally faster.
- Eligibility: The truth is that lenders often base their decisions on what they see in terms of revenue from your business, credit score, and how long your business has been operating.
- Terms: Terms range from a few months, to several years, and interest rates will depend on the lender as well as your qualifications.
But, if you’re new to this, some popular online lenders are Kabbage, OnDeck, and Fundbox. Many find these lenders to be more flexible than banks and they are even open to lending to startups who cannot yet have substantial funds.
3. Evaluate Other Ways of Financing your Product or Service
If you can’t get traditional loans, or at least you’re not sure if you qualify for one, there are some alternative financing options you can look into. Not all these methods require you to have a lot of money upfront and can furnish the capital to start your business.
Grants for Startups
While grants are very competitive and limited in scope, they can offer non repayable funding particularly to startups in particular industry verticals e.g. technology, health, social entrepreneurship.
- Eligibility: The eligibility criteria for each grant may include being a woman owned business, veteran owned business, or minority owned business.
- How to Apply: Government agency, foundations, or corporations research grants. You can find available grants on websites such as Grants.gov or the SBA’s website.
Grants are very sought after and competitive, but if you qualify for the grant it can be quite a good option.
Venture Capital and Angel Investors
Angel investors are persons or persons who invest in new or early stage startups in return for equity or convertible debt. Venture capital (VC) are firms that invest in high growth businesses with the promise of high returns.
- Angel Investors: They tend to put smaller amounts into early stage businesses.
- Venture Capitalists: Invest a greater sum of money, however, they do expect a greater return there and usually actively manage the business.
Angel investors and VCs normally look for new business ideas that will grow rapidly. If you can pitch your idea well, you could do it without any money upfront.
Trade Credit and Vendor Financing
A business’s offer to buy goods or services from their suppliers, and pay for them at a later time, is known as trade credit. It can be a great avenue to get the products or services that you need to run your business without upfront payouts.
- Eligibility: Basically they depend on the relationship with their suppliers and vendors.
- How It Works: You may take advantage of vendors that would provide you credit terms where you allow you to pay for products or services in 30, 60, or 90 days, letting you make revenue before paying.
It’s a useful option if you require inventory or items but can’t front the cash to pay.
Also Read: Who Shat on the Floor at My Wedding? A Humorous Yet Practical Guide
4. Improve Your Creditworthiness
While you may not have funds to fund your startup initially, a good credit score will help you increase the likelihood of a startup loan. Your credit score is a way for lenders to assess whether you’ll be able to repay your loan.
Tips for Improving Your Creditworthiness:
- Check Your Credit Report: Additionally, make sure you’re error free on your credit reports so that nothing negative brings your score down.
- Pay Down Debt: By paying off loans or reducing your credit card balances, your credit utilization ratio is improved, and this has an effect on your score.
- Build a Credit History: If you have little or no credit history, a secured credit card or being an authorized user on someone else’s account may be wise.
Boosting your credit score does not happen overnight, but it’s crucial if you plan to secure more favorable loan terms in the future.
5. Get Ready for the Loan Application Process
Once you understand how you are going to finance your new business venture, and how to improve your credit, it’s time to apply for a startup business loan. Here are the key steps in the application process:
Gather Required Documents
Business Plan: A business plan that describes everything about your business, including a strategic plan and financial projections.
- Tax Returns: And personal and business tax returns of the last few years.
- Bank Statements: They must furnish you with statements showing their present financial conditions.
- Proof of Identity: Personal identification and business advertising.
Shop Around for Lenders
Requirements and terms vary by the different lenders, and it’s wise to shop around. They also provide interest rates, loan terms, and eligibility criteria to enable you to find a best fit for your business.
Submit Your Application
When you have all the documents in place, you apply for the loan from the lender. Please be prepared to provide answers about your business, and when asked to provide additional documentation.
Wrapping Up
You can get a startup business loan with no money, but it’s not easy, you need to do your research, prepare and negotiate in order to achieve it. To increase your probability of getting your business funded, you need to know your financing options, enhance your credit worthiness and find yourself with a good business plan in mind.
The important thing is to weigh all of your options: applying for an SBA microloan, attempting crowdfunding, reaching out to angel investors, among other options, and tune out the noise to focus on building a sustainable, profitable business. Hope so, now you know how to get a startup business loan with no money.
