Starting a business is a thrilling venture. You have a solid plan, and you are ready to execute. However, you hit a common obstacle: funding. Most banks want to see a business owner invest their own money into the company before they grant a loan. So, the million-dollar question is: how to get a startup business loan with no money. It may seem impossible.
However, many successful entrepreneurs have built their companies from the ground up. They used funding strategies when they had no personal finances to invest. This guide enables you to look beyond the general advice and gives you actionable steps to obtain the financing you need.
Why Banks Say No to No-Money Startups
The first step is to comprehend the barriers in front of you. When you ask for a loan, a lender sees you as a risk. They are betting on you succeeding enough to pay them back with interest. This is a great risk. If you have no money, then the risk is exponentially greater. They think you have no “skin in the game.”
This leads to the necessity of a personal investment. This is what allows the banks/lending institutions to feel comfortable. You believe you have a good enough idea to risk your own savings. Without that, the chances of obtaining a loan diminish.
At the end of the day, banks are a business, and a business is there to protect itself, and to do that, they have to put requirements on their loans. They often require a down payment as well. 10 to 20% of the loan needs to be paid down.
So, if you have no money, these doors are going to be closed to you. But do not worry; there are many other doors to open.
Build a Powerful Business Plan
Every lender you approach will ask for a business plan. It will be the most important document you will prepare because it is more than an idea; it is your plan for the success of the business. Without any money, your plan will be the only thing that talks for you, so make sure it is convincing.
Some important components of the plan will be
- Describe your business: What do you sell, and who is your target customer?
- Market Analysis: Who do you see as the competition? In what ways will your business be differentiated?
- Financial Projections: Provide your projections of revenues, expenses, and profits so that there is an expectation established for the next 3-5 years.
- Your Team: Who will you be working with? What skills and experiences do they have?
Laying the business plan out this way will answer a lot of the questions the lender has, which will make them more confident about giving you the money.
Your business plan should also account for operating costs such as permits and insurance, including understanding how much is liability insurance for a business in the USA.
Your Credit is Your Best Friend
Lenders are going to assess your personal financials if your business is unproven and has no history. The personal credit score a business owner has will substitute for the business score. A score is good if it is 700 and above. It means the business owner is responsible for the debt and pays their bills on time.
Take a look at your credit score and see if it is low. Take a look at your credit history and see if there are any mistakes that are dragging your score down, and then correct them. If it is low, then it means you need to improve it. It means paying off personal debt and making all the payments.
When there is a good personal credit score, it can help in getting personal loans that can also help the business. A strong credit profile not only improves loan approval chances but can also impact costs like insurance premiums, which is why it helps to know how to check your business credit score.
SBA Microloans: A Startup’s First Step
SBA is a great starting place for starters, also. They are a great resource for you, even though they do not directly lend any money. They do, however, guarantee money lent from partnering lenders. With the guarantee, the lenders are less likely to lose money and more open to approving loans.
SBA microloans are ideal for new business owners. These loans are meant for small businesses, which means that the amounts are smaller, usually around $50,000. These loans serve startups and small businesses that may have trouble qualifying for more standard forms of financing.
The eligibility criteria are more relaxed. Lenders who offer microloans evaluate your business plan and character more than they do your personal finances. This is important for getting to know how to get a startup business loan with no money.
Consider Online Lenders and Fintech Companies
The new era of lending offers flexible funding solutions, with online lenders and fintech companies offering funding speed and ease of access that outcompete traditional banks. These lenders may allow funding with more emphasis on the business and personal credit potential, rather than a large upfront investment.
The advantages of online lenders and fintech companies are:
- Often faster and fully online application and funding processes.
- Easier qualifying criteria compared to banks.
- More consideration of personal credit and future cash flow.
- Funding availability for new ventures and entrepreneurs with little or no money.
- In some cases, higher funding costs but more access to capital.
Online lenders are a good fit for new ventures needing funding and wanting to create their financial history.
Community Banks and CDFIs
Do not forget smaller, local institutions. Community Development Financial Institutions (CDFIs) are private financial institutions with a social mission to assist low-income and economically distressed communities. They target local economic development and not purely bottom-line profit.”
CDFIs may be more likely to help first-time entrepreneurs who do not have personal financial resources. They provide loans but also offer business development assistance and technical support to help your business grow.
In the same way, local community banks and credit unions are also focused on the health of the local economy and may offer more lenient financing options to local entrepreneurs.
Using a Co Singer or Collateral
If you do not have cash, you may have something of value. This is where collateral comes in. Collateral is an asset you offer to a lender to back a loan. It could be real estate, a car, or even some valuable machinery. If you do not pay back the loan, the lender takes the collateral. This makes their position a lot less risky.
Another possibility is getting a co-signer. A cosigner is someone who has been doing well financially, has a good credit record, and is willing to take responsibility for your loan if you fail to pay it back. This person could be a relative or a mentor in your business. The lender is more willing to approve a loan if this person has a more financially stable background.
