You have a wonderful company concept and a clear plan. Unfortunately, you lack the funds to make it happen. A difficult circumstance. Start a profitable company without cash? You could need outside capital, which may include receiving a starting company loan without money.
Let’s discuss business loans for startups, how they work, whether you can get one without income, and other ways to get the capital you need to start your business.
Startup loans—how do they work?
Let’s briefly explain how small company loans for startups operate before we discuss how to secure one even with little money.
Business startup loans provide entrepreneurs the financing they need to launch their businesses. These loans may originate from banks, credit unions, internet lenders, investors/venture capitalists, and the government.
Startup company entrepreneurs must apply for funding and provide a thorough business plan. This strategy should include revenue, costs, cash flow, and future financial estimates for the organization. Additionally, lenders will examine the company owner’s finances, including credit history.
They use this information to analyze risk, establish the applicant’s eligibility for the small business loan, and propose an interest rate, terms, and conditions if approved.
Can tiny businesses receive no-money starting loans?
Complete openness: New businesses have trouble getting standard company beginning loans since they’re not simple to approve.
The CEO of lending platform NationalBusinessCapital.com, Joe Camberato, says it’s practically hard to secure a starting loan for a new firm.
Why? Camberato says lenders seek sales, revenue, and a break-even point or road to profitability. Without such knowledge, it’s hard to persuade a conventional lender to offer you a company loan while you’re fresh.
You may boost your loan approval odds by doing these steps:
Work behind the scenes. Danetha Doe, financial expert and Founder of Money & Mimosas, which has helped entrepreneurs raise over $160 million in capital since 2014, advises entrepreneurs to “develop a comprehensive business plan, prepare financial statements and projections, and improve personal credit” before applying for a startup business loan.
Select a lender. Because starting company loans are hard to get, you want to be sure you apply to the correct lender. Research and “consider lenders specializing in startups or those offering alternative financing options,” adds Doe.
Know lender criteria beforehand. Before applying for a business loan, make sure you understand the lender’s criteria.
After completing the loan application, you don’t want to find out you don’t qualify. Not only is it a waste of time, but the lender may see it as a hurdle to future financing.
Expect substandard terms. Startup company loans with no income are risky for lenders since they don’t know whether your firm will succeed or be able to repay the loan.
If they offer the loan, the terms will likely reflect that risk, such as a higher interest rate, high penalties for missed payments, and shorter repayment terms. If you apply for a company starting loan, know that you may not receive the greatest offer and that you must carefully check the conditions before signing.
Show collateral. Startup company loans may be hazardous for lenders. Offering collateral may reduce loan risk. If you fail on a loan, the lender might take your collateral, such as a vehicle or property.
Now, collateral can make a loan feel less risky for the lender (as they have a way to recoup their losses should you not pay back your loan)—but it increases the risk for you as the borrower, as you put whatever you collateralize (again, like your home or car) in jeopardy if you can’t pay back the loan.
If you acquire a startup loan or new company, handle the money to please your lender.
Doe advises using cash according to your company strategy, maintaining excellent accounting records, focusing on business milestones, and communicating wins/challenges with lenders.
Alternatives to beginning company finance
Traditional startup loans are tough to secure if you have no money or company experience. But the good news? You can get capital to establish, develop, and expand your new business even if you don’t qualify for a loan.
Many options to small company beginning loans might provide the financing you need. Doe cites “personal loans, microloans, business credit cards, and crowdfunding.”
Here are several alternatives to startup company loans with no income that may help you get finance as a new firm:
Microloans
If you don’t need much funding to start your firm, consider a microloan.
Like their name, microloans are tiny company loans—usually $50,000 or less. They target entrepreneurs who have problems getting conventional finance, especially startups. Microloans are available from the SBA and nonprofit lenders like Ascendus and Justine Petersen.
New company owners starting from scratch benefit from microloans’ lower borrowing restrictions.
“Microloans are often one of the best options due to their low borrowing requirements and flexibility,” Doe explains.
Remember that some microlenders demand three to six months of business/financial history to grant a loan.
Personal loans
A startup firm has no financial history. You probably do, and you can use that financial history to acquire a personal loan to support your company.
Camberato advises taking out numerous personal loans from banks or fintech lenders to start.
Always remember that you—not your business—are responsible for repaying a personal loan. That applies whether your firm succeeds or not. Before getting a personal loan, be sure you can afford the monthly installments.
Find a high-paying job on The Muse to start your dream company.
Credit cards
A credit card with a low initial interest rate may be a cheaper long-term borrowing option.
“Take advantage of introductory rates for the first 12 months on both personal and business credit cards,” Camberato advises.
Many credit cards offer 0% APR for 12–15 months, and even for 21 months. No interest is charged for the first 12–21 months of the card.
Credit cards with 0% introductory APRs may help you start your company without paying a lot of interest, saving you money.
purposes your credit card properly, whether for business or personal purposes. Only borrow as much as you can afford to repay during the promotional period, and try to pay it off before it expires.
Understand the card’s rules; although many start accruing interest at the conclusion of the promotional period, some may apply interest to the overall debt if it’s not paid in full, which might result in a large bill.
Trying to build credit? You Should Know About Credit Cards
Investors
Doe suggests “networking with potential investors,” such as VCs and private investors, to raise startup funds. Choose the ones that invest in your sort of company, then meet with them, present your investment, and request cash.
You might also find local investors. “Raise money from friends and family,” Camberato advises.
Treat borrowing from friends and family like a commercial transaction. Write everything down. Clarify the conditions and make sure you receive the finances you need to launch your firm and that they get a fair deal and ROI.
Camberato suggests giving an 8–12% interest rate, which yields a good ROI and a better return than the market, making it a win-win.
As a precaution, don’t accept money from friends or relatives if you fear it may damage the connection. For instance, if lending you the money might put them in financial danger, or if unstable interpersonal dynamics may create conflict while you return it.
Business is vital, but relationships are more important. Money may make people behave strangely.
The sort of company you create may qualify for a grant, which is non-repayable unlike a loan.
Many government and private grants assist new company entrepreneurs, including women. Check for grants that match your company.
Grants are hard to receive, but you don’t have to pay them back, so it’s worth researching your alternatives.
Get company finance to succeed.
Small company beginning loans for people without money or income are not guaranteed. Whatever your financial status, you may establish your ideal firm by securing a startup loan, asking for a personal loan or credit card, or selling your vision to investors. Waiting for what? Go get money!
