Startups often require a significant upfront investment to bring their offerings to market. As a result, they tend to have high costs and limited funds in their early days, which makes external financing essential for their growth.

Unfortunately, it also means they frequently need to qualify for a loan without significant revenue or cash reserves, which is challenging. If you’re in a similar situation, here’s what you should know about how to get a startup business loan with no money.

Can You Get a Business Loan With No Money?

Getting a business loan with no money is challenging because lenders want to know you can repay them before offering you funding. As a result, they’ll often consider your finances to determine whether you qualify.

If your startup has little to no money, many lenders will be less confident in your ability to afford your monthly debt payments. Some may consider your application anyway if you have good credit and provide a strong business plan, but it’s not guaranteed.

Your best option may be to wait to apply for a startup loan until your company’s financial foundation is more stable. Taking on debt is risky and can lead to significant repercussions, especially if you sign a personal guarantee to qualify.

Unfortunately, that’s not always possible. You may have to take the risk if you need funds to sustain your company or get your operation off the ground. In that case, your best option is to pursue alternative financing that doesn’t require you to have money.

Small Business Loan Options (When You Don’t Have Big Revenue)

Traditional financial institutions have the highest qualification requirements, and you’ll struggle to get financing from them without money. Let’s explore some debt accounts that may be more accessible with low revenue or cash flow.

Business Credit Cards

Fortunately, low sales usually won’t prevent startups from obtaining business credit cards. A small business owner can often qualify for one using their personal credit score and income, though they’ll have to sign a personal guarantee.

A business credit card isn’t a perfect substitute for a small business loan, but it’s still essential for most startups. Using one exclusively for company transactions helps separate personal and business activities, which is critical for organized bookkeeping.

Funneling your company expenses through a revolving business line can also help you earn cashback rewards if you qualify for a more competitive card. However, that usually requires good to excellent personal credit.

In addition, credit cards are ideal for short-term financing. Their interest rates are too high to carry a balance on them for long, but they have an interest-free grace period of about a month.

Finally, business credit cards are perfect for helping you build business credit. They’re often the first financial tradeline that business owners acquire, and using them responsibly can go a long way toward eventually qualifying for a business loan.

Microloans

The Small Business Administration (SBA) runs many small business startup loan programs. Its accounts are generally considered the best small business loans on the market due to their uniquely favorable terms.

Unfortunately, getting an SBA loan is often as challenging as obtaining a traditional small business loan. The application process is extensive, and the qualification requirements are significant, including the minimum revenue expectations.

However, the SBA’s microloan program is more accessible than most. Banks and credit unions usually facilitate other SBA loans, but microloans come from specially designated intermediaries, typically nonprofit community-based organizations.

They have less restrictive requirements, and you may be able to qualify for a microloan with bad credit or limited revenue. The program aims to help small businesses and not-for-profit childcare centers get off the ground.

The SBA notes that startups often need to give collateral and a personal guarantee to qualify. However, each lender has its own lending and credit requirements, which can vary significantly.

If you get a microloan, you can expect a smaller principal balance than you would receive with a traditional business loan. The program provides financing up to $50,000, but the average account is around $13,000.

Invoice Factoring

If you’re struggling to pay your bills while waiting for customers to pay you, invoice factoring may be the solution. It’s an alternative form of business funding that involves selling your outstanding invoices to a third party before they’re due.

Businesses often issue invoices with extended repayment terms, such as net 30 or 60. As a result, they may have to wait months to collect payment for the products or services they provide.

Not only does that put you in the red while you wait to collect payment for costs incurred, but you’ll continue to incur additional expenses in the interim. That can significantly strain your working capital reserves.

Factoring can help you avoid cash flow problems due to delayed payments by liquidating your invoices early. Typically, you submit your invoice to the invoice financing company and receive between 70% and 90% of its value.

Subsequently, they become responsible for collecting the invoice. Once the provider gets their money, they’ll pay you the rest of the invoice’s original value minus a fee that usually ranges from 2% to 5%.

Fortunately, you can often qualify for factoring regardless of your gross revenues, cash flows, and capital reserves as long as you have legitimate outstanding invoices to sell.

Equipment Financing

If you need funding to purchase an asset for your company, an equipment loan is a great option. It’s a type of secured business debt that lets you purchase equipment using the asset as collateral.

Unlike an unsecured business loan, the lender can seize the equipment and sell it to recoup its losses if you default. As a result, their risk is lower than usual, and they may be willing to work with a startup that doesn’t have significant revenues yet.

Unfortunately, equipment loans usually have a principal balance that matches your new asset’s purchase price exactly. As a result, the arrangement won’t help you generate additional working capital.

You can get equipment loans from traditional institutions and online lenders, but your terms will vary significantly. Generally, they’ll be most favorable if you get an account with a bank or credit union, but online lenders have lower qualification requirements.

Crowdfunding

Crowdfunding refers to several types of business financing that involve lower investments from multiple third parties rather than a higher sum from a single provider.

Equity crowdfunding is the most traditional approach and requires selling shares of your startup to investors. It’s like an initial public offering (IPOs) but for private companies. Your ownership decreases, but you avoid taking on fixed debt payments.

Meanwhile, debt crowdfunding essentially involves issuing a term loan funded by many lenders. You maintain control of your company, but you’ll repay the loan each month plus interest.

Rewards-based crowdfunding is another popular option and likely the best if your startup lacks revenue. Instead of selling shares or taking on debt, you offer your products or services to those who contribute to your campaign.

Startup founders typically complete their crowdfunding through online platforms like Kickstarter and Fundable, but the fees can be expensive. They often take around 5% to 10% of the amount raised plus a portion of each contribution.

For example, Fundable takes 5% of your total funds and 3% plus $0.20 per contribution, or 5% plus $0.05 for any under $10.

How To Choose the Best Option

There are many different financing options for startups with limited revenue, cash flow, or capital reserves, and each has unique pros and cons. As a result, it can be challenging to figure out which is best for you.

Fortunately, you can usually figure out the most favorable choice using the process of elimination. Start by assessing your company’s qualifications, including the following:

• Time in business
• Average monthly bank balance
• Personal and business credit scores
• Gross monthly revenue and cash flows

Those criteria should give you an idea of your overall creditworthiness. Use them to determine which accounts you’re unlikely to qualify for and eliminate them from the running.

Next, narrow your list by removing any financing arrangements you can’t realistically afford. If you know you’ll struggle to keep up with your payments and risk defaulting on your account, it’s probably not worth applying.

Your list should then be short enough, so shop around. Start with the financing option that’s likely to provide the most favorable terms, and get quotes from multiple providers. Keep your applications within 14 days to minimize damage from each credit check.

If you don’t receive an acceptable offer, you can move on to the next most favorable alternative, but consider whether the effort and damage to your credit are worth it. Remember, it might be best to wait until your finances are more well-established.

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