The process of starting a business can seem like a catch-22. It’s because, in many sectors, it is impossible to begin your operations without significant start-up capital. If investors aren’t willing to support your venture, you’ll have to get a business loan. This generally requires that your company meets the minimum income requirements to be eligible.
Businesses that are new or seeking to become owners might find this obstacle to approval a bit frustrating, however, there are still options for financing for those who have no money. Here you will learn How To Get A Startup Business Loan With No Money?
The Importance of Cash Flow To Business Lenders
Cash flow is the ratio between income and expenses of a company. A company can be in a state of negative cash flow meaning the total revenue of the company is greater than its expenses. Alternatively, it could have a negative cash flow which means the expenses of the business are greater than its revenues.
Companies with a positive cash flow are more trustworthy borrowers who can pay their debts which makes them a reliable prospect for lenders. But, if a company has a negative cash flow or none at all, lenders will be reluctant to lend money. In the final analysis, creditors need to be sure that their customers will be able to repay their loans without any problems.
When You Might Need to Get a Business Loan With No Money
Businesses that are seeking to get off on the right foot and expand their business may be looking for financial assistance to do this. If business owners are new and aren’t able to secure funding for their startup most likely, they’ll have to borrow money that they can borrow today and pay back in the future.
With the lender’s criteria and your projected business growth and projections, a business credit, as well as a startup loan, could be an attractive alternative, even if you do not have funds. This could save you from having to tap into your savings account to start your business. But, it’s important to only make loans that you are sure you will pay back on time.
4 Financing Options How To Get A Startup Business Loan With No Money
Here are the best methods to obtain a business loan even if you’re making little or no income.
1. Business Loans
Since many business lenders require potential applicants to meet certain minimum annual income requirements to be eligible for a loan which is why it’s difficult to get a traditional business loan. But, some lenders are willing to offer small-scale business loans for startups that have no income at the moment.
For new firms and startup companies that are not able to provide evidence of annual income Business lenders who consider the companies to be eligible for lending are likely to require additional documentation. For instance, startups generally require financial projections, as well as a comprehensive business plan to demonstrate the capacity of the business to meet its obligations in debt.
2. Business Credit Cards for Business
Credit cards for businesses with individual credit cards allow you to take out loans up to a certain credit limit. You’re required to pay back your balance by the end of each month. Unpaid balances will start accruing interest until they are fully paid. This means that you will not pay interest completely if you pay the balance in full each month.
In contrast to business credit cards, credit card companies typically rely on your earnings and credit score as criteria for approval which makes them an attractive alternative for businesses that have little and no funds. You won’t be required to present documentation that proves your company’s annual or monthly income. Business credit cards generally require a minimum credit score of 670. A higher score can result in the most favorable conditions.
3. Equipment Financing
Finance for equipment allows you to fund the acquisition of items that is essential to running your business. This could range from electronics and small appliances to massive manufacturing equipment. The piece of equipment you’re financing serves as collateral–something of value the lender can repossess to recoup any losses–and secures the loan.
Since collateral lowers the risk you face to lenders, lenders who finance equipment are more likely to grant loans to new businesses or start-ups with little to no cash flow. But, like business loans, these companies will usually require financial projections and a comprehensive business plan to prove that the company can meet its obligations in debt.
While it’s not the most convenient method of raising money, however, crowdfunding has emerged as a common source of business financing. The way it works is It’s simple: Choose an online platform, such as Kickstarter or Wefunder. You then create an online post that describes your service or product. You then select the amount you want to spend and design reward levels for contributors according to the number of their contributions, including early access to your product, special features, or merchandise.
The disadvantage of crowdfunding is that typically, you must meet the goal of your campaign to earn any amount. If you don’t meet the target, the majority of platforms return the money to donors, meaning there’s no guarantee of receiving any money. The benefit of crowdfunding is that the funds you raise are simply donations which means you don’t have to return them to donors.
Crowdfunding is also less costly than other types of financing. Instead of paying bank interest, the funder pays a percentage of the money you raise, typically ranging from 3% to 5 percent. If your campaign fails fees are not charged.
But, crowdfunding isn’t an absolute method to raise funds. Research has shown that only 23.3 percent of all crowdfunding campaigns are successful. Design, gaming, and technology projects are among the most sought-after areas. If your company doesn’t fall into one of these areas, you might be less successful with crowdfunding.
Be Aware Of The Repayment Obligations
A loan can be taken out simply, but paying it back is more challenging, particularly when you’re not in cash flow.
Before you sign anything review your cash flow to ensure you can afford the payment. Be realistic about your plans. If you default on a payment you make, it can affect your credit score and make it more difficult to get loans in the near future.
If you are in default and you have personally secured your loan then you’ll need to pay back the loan using personal funds, such as your retirement or checking account.
Can You Get a Business Loan with No Cash?
Before you take out a loan for business, run the numbers and determine how much you can repay, based on the present cash flows. Do a scenario analysis and consider whether you’d be able to make the repayments. If so, taking out a business loan could be the best option. The worst thing you could do to do is be stuck with a loan that you cannot pay back and the consequences that go along with it.