How to Get a Startup Business Loan With No Money

Starting a new business can be an exciting yet daunting endeavor. You likely have a great idea, a solid business plan, and tons of passion. But one thing you may lack is enough capital to get your business off the ground.

Without savings or investments to self-fund your startup costs, you’ll need to find a way to finance your new business. The good news is that there are options for securing a startup business loan even if you don’t have money to put down upfront.

In this comprehensive guide, we’ll explore how to get funding for your new business when you don’t have any capital to invest.

Research Lender Requirements

The first step is gaining an understanding of basic lender requirements for startup business loans. Each lender will have its own specific criteria, but there are general eligibility standards you’ll want to be aware of.

Time in Business

Most traditional lenders require that a business be operational for at least 6 months to 2 years before they will consider approving a loan. However, some alternative online lenders may provide startup funding for brand new businesses.

Annual Revenue

Lenders will want to see that your business has generated a minimum amount of revenue over the past year. Many have a threshold of at least $50,000 in annual revenue.

Personal Credit Score

Your personal credit score will be evaluated, even if you’re applying for a business loan. Most lenders look for a credit score of 650 or higher. Anything below 500 will likely lead to a denial.

By researching lender criteria upfront, you’ll have a better sense of which loans you may qualify for based on where your startup currently stands.

Types of Startup Business Loans

If you don’t have any capital to invest in your startup, the good news is that there are a variety of business loan options specifically designed for new entrepreneurs like you.

SBA Microloans

One of the top funding sources for startups is the Small Business Administration’s microloan program. The SBA partners with nonprofit lenders to provide loans up to $50,000 for new and early-stage businesses.

Benefits:

• Low interest rates (around 6-8%)
• Long repayment terms up to 6 years
• Approval is based more on business plan than credit
• Technical training and support provided

In fiscal year 2023, approximately 25% of SBA microloans issued went to brand new startups.

Business Grants

Grants are attractive because they don’t need to be repaid like a traditional loan. Competition is fierce, but some federal and state programs have fewer eligibility requirements that new businesses can meet.

For example, the SBA has Growth Accelerator Fund Competition grants open to startups less than 5 years old in certain industries. The application process is straightforward compared to other grants.

Business Credit Cards

Business credit cards are a quick, accessible way for startups to access capital. About 80% of small business owners carry a credit card in their wallet.

Cards like the Ink Business Preferred Credit Card from Chase only require a personal credit score of 660+ with no collateral or upfront cash needed.

Personal Loans

Online lenders like LendingClub and Prosper specialize in fast personal loans based on creditworthiness alone. You can qualify for up to $40,000 with a 600+ credit score.

While intended for personal use, nothing prevents you from applying funds toward legitimate business expenses like equipment, inventory, marketing, etc.

Tips for Getting Approved

Meeting the minimum criteria is a good starting point, but you’ll further boost your chances of getting approved for a startup business loan if you:

Evaluate Assets to Use as Collateral

Most traditional bank loans require collateral to secure financing. Inventory, equipment, accounts receivable, and real estate are common assets used.

Having something to put up will make lenders more confident in lending to your untested business.

Consider Adding a Cosigner

A cosigner with good credit essentially guarantees your loan if you default. This decreases the lender’s risk.

Ask a business partner, friend, or family member with a strong credit history to cosign your startup loan application.

Know Exact Lender Requirements

Do your homework to find out the precise lending criteria of the loans and lenders you are applying to. This helps avoid wasted time applying for financing you don’t qualify for yet.

For example, the SBA Microloan program requires applicants to be turned down for traditional financing first.

Confirm Your Ability to Repay

At minimum, you need a business plan projecting revenue and expenses. Detailed financial statements and cash flow projections are even better.

Providing the hard numbers on how you’ll generate income to repay the loan makes it a safer bet.

Alternatives if You Can’t Get a Loan

Don’t get discouraged if your loan applications get denied. All businesses face rejection at some point. Consider these alternative funding options:

Small Business Grants

In addition to the SBA, there are many other federal grant programs like the Minority Business Development Agency and Women’s Business Center grants.

State and local governments also have grants for area startups. Use free grant databases like Grants.gov to find options.

Friends and Family Loans

Ask close friends or family members to invest in your business idea. Set clear repayment terms and timeline to avoid misunderstandings.

Self-Funding Via Bootstrapping

Bootstrapping means carefully managing costs and reinvesting any profits back into your business to fund growth. Options include using personal savings, forming strategic partnerships, minimizing overhead, etc.

Crowdfunding

Platforms like Kickstarter and Indiegogo let you make a pitch to potential investors. If you meet your fundraising goal, the money is yours minus platform fees.

Conclusion

Getting a business loan with no money upfront is challenging but definitely possible, especially if you do your homework regarding lender requirements. SBA microloans, business credit cards, and online personal loans are accessible options for startups.

Have a solid business plan that highlights your ability to repay. Consider a cosigner and any assets that could be used as collateral for added reassurance to lenders.

If you get denied for a loan, don’t give up. Look into small business grants, loans from people you know, self-funding, and crowdfunding campaigns. Where there’s a will, there’s a way. The key is being resourceful and persistent.

With a combination of knowledge, preparation, and passion, you can get the startup funding you need to turn your entrepreneurial dream into a reality even without savings or investments.

FAQs

1. What types of loans can I get for my startup with no money?

Some options include SBA microloans, small business grants, business credit cards, and personal loans that can be used for business expenses.

2. What lender requirements should I be aware of?

Common requirements include time in business, annual revenue, and personal credit scores. Each lender has specific eligibility criteria.

3. Can I get a business loan with bad credit?

It’s possible but more difficult. Improving your credit score and finding lenders that work with bad credit applicants will help.

4. How do I find small business grants?

The SBA and Grants.gov are good resources. Your state or local government may also have grants for startups in your area.

5. What collateral options work for startup business loans?

Inventory, equipment, accounts receivable and real estate are commonly used as collateral. Assets make lenders feel more secure.

6. Should I use a cosigner when applying for startup financing?

Adding a cosigner with strong credit will make approval more likely. Make sure terms are clear to avoid relationship issues.

7. How do I show a lender I can repay a loan?

Provide a solid business plan with financial projections, profit/loss statements, and details on revenue sources.

8. What if I get denied for a small business loan?

Consider family loans, crowdfunding campaigns, business grants, self-funding via bootstrapping, or reapplying after improving your credit.

9. Can I use a business credit card to fund my startup?

Yes, business credit cards require little upfront and provide quick financing. Make payments on time to build business credit.

10. What is the SBA microloan program?

The SBA partners with lenders to provide loans up to $50K for startups. Low interest rates and long repayment terms make them attractive.

11. Are there startup loans specifically for veterans?

Yes, the SBA Patriot Express Loan offers flexible terms and lower collateral requirements for veteran-owned startups.

12. Where can I find personal loans for my business?

Online lenders like LendingClub and Prosper offer quick access to personal loans based on credit score alone.

13. How much money can I get from a business credit card?

Credit limits on business cards often start around $5,000. Limits can be increased over time with responsible usage.

14. What are the advantages of bootstrapping?

Bootstrapping lets you retain full ownership and control. It also forces discipline around finances and spending.

15. What crowdfunding platforms should I consider?

Kickstarter and Indiegogo are most popular. GoFundMe is used more for personal causes but can also fund businesses.