How to get a startup business loan with no money

Loan options for businesses with no money

With so many business loan options out there, you may be wondering which ones are best for startup businesses with no money. You have several financing options to consider. All business loans work differently, so weigh the pros and cons of each to determine the best path forward.

Microloans

A microloan provides funding up to $50,000 to startups and new businesses, with the average microloan being around $13,000, according to the Small Business Administration (SBA).

Microloans are available through certain SBA-approved lenders. Each lender sets its own eligibility requirements, but you’ll often need some type of personal guarantee or collateral.

Startups can use microloans for a range of purposes — from working capital and inventory to furniture and equipment. However, you can’t use microloans to pay off debt or buy real estate.

Invoice financing

If your business is already bringing in revenue, you can get a cash advance on outstanding invoices through invoice factoring. This type of funding provides immediate working capital, usually 70% to 90% of your outstanding invoice amount.

But fees are expensive, so use it selectively. You usually don’t need a strong credit score to get approved, but your customers may need good credit.

Equipment financing

If your startup needs new equipment, like for a new office, restaurant or gym, equipment financing may be a good option. Some equipment financing lenders primarily work with established businesses, but some will lend to startups that haven’t been operational for long.

The equipment itself serves as collateral. But you’ll still need a strong credit score and, in some cases, a down payment.

Business credit cards

Business credit cards allow you to spread startup costs over time. They’re often a good option if you have no revenue or established business credit, as you can often use your personal credit to get one.

Like regular credit cards, expect high interest rates if you carry a balance. But you won’t need a down payment or collateral to get approved, and your card will likely earn rewards or bonuses. Also, like a regular credit card, you’ll be able to borrow up to your approved credit limit.

Personal loans

Taking out a personal loan and using it for your business is another way to fund a startup with no money. Personal loans typically have higher interest rates than business loans, but may be easier to qualify for if you have good personal credit.

Be cautious about putting personal assets at risk for the business. They’re useful for smaller startup costs, but ensure you can handle the payments.

“Business owners seeking capital to fund a startup or pre-revenue businesses generally will not qualify for commercial small business financing due to a lack of sufficient cash flow and a lack of assets that can be used as collateral,” said Ben Johnston, chief operating officer of Kapitus, a direct lender headquartered in New York.

“As a result, many small business owners choose to leverage their personal credit profile, taking personal loans and drawing down on credit cards to fund their early-stage business.”

» MORE: Business loan types

How to improve your loan application

When applying for a small business loan with no or low revenue, you need to make your application stand out. Here are some tips to better your chances of loan approval:

• Have a strong business plan. Lenders want to see you have a viable concept and long-term vision. Detail your product or service, customers, operations and financial projections. Show you've done thorough market research.
• Boost your personal credit score. Some startup loans like invoice factoring and lines of credit are available to those with imperfect credit. Even still, you’ll qualify for the best rates and have more options available to you if you improve your credit health.
• Be ready to personally guarantee the loan. In lieu of requiring cash flow, some lenders will ask you to sign a personal guarantee before approving you for a startup loan with no money. This gives the lender recourse if the business can't repay.
• Put up collateral. Options like equipment financing and microloans may require some form of collateral for approval. These assets offer security if you default.
• Ask for a co-signer. A co-signer with strong credit can get an application approved. In some cases, you may want to offer something in return, like a stake in the business.
• Start building business credit now. Having trade credit, lines of credit and positive payment history can provide credibility.

» MORE: Can you get a business loan with no credit check?

Should you get a startup loan with no money?

Deciding if you should get a business loan when you have no revenue requires careful thought. Consider these questions before moving forward:

• Do you have a solid business plan? A lender will want to see realistic financial projections, not just dreams. You need to demonstrate you have the skills and knowledge to succeed.
• Are you comfortable with debt? Loans mean monthly payments and interest charges for years. If you don't like debt, it could cause undue stress.
• Will the loan be used wisely? Don't use it for overly lavish offices or unnecessary perks. Apply it to operations that will quickly generate revenue.
• Do you have some personal funds to invest? Putting your own money on the line shows commitment. It also reduces the loan amount needed.
• Is now the right time? Consider waiting until you have some initial customers and revenue. Then use loans to expand, not start from scratch.
• Do you have a backup plan? Know how you will repay the loan if the business fails. Have assets for collateral and a source of income.

Borrowing can be wise if you need funds to finalize a product, rent space or bridge a contract delay. The key is balancing risk.

With proper planning, a modest loan used strategically can provide the last push a promising business needs. But avoid large loans if you lack experience and some kind of track record. Start small, prove yourself and expand once you’re operational.

» MORE: How hard is it to get a business loan?

Alternative ways to fund a startup with no money

Loans aren’t the only way to get the money you need to operate a new business with no money. Consider these alternatives if loans aren’t an option for you:

Crowdfunding

Turn to crowdfunding platforms to raise small amounts from a large pool of contributors. Your success will depend on how effective your marketing is, and you could raise less than you hoped for. That said, there are three common types of crowdfunding you can pursue:

• Debt crowdfunding raises money through investor-funded loans you’ll need to repay.
• Rewards-based crowdfunding raises money through donations or sales that incentivize giving.
• Donor-funded crowdfunding is where you receive funding in exchange for a small stake in your business.

Friends and family

Borrowing from friends and family is low in cost and risk. Be clear on terms and put agreements in writing. A personal relationship could be strained if the business fails. So approach loved ones cautiously.

Angel investors and venture capital

Angels and venture capitalists (VCs) inject larger amounts of capital in exchange for equity. You often need extensive business plans and traction to go this route. One tradeoff is that you lose some control over your business, but it can be worth exploring if your goal is to scale an existing business model.

Bottom line

There are many different types of startup loans, so focusing on the kinds that don’t require a down payment can help you get funded with no money. These primarily include invoice factoring, business credit cards, personal loans and microloans. Explore the best business loan lenders to find the right match for you.