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It can take time for early-stage businesses, even those that have been operating for a couple of years, to earn revenue. And while it is possible to get a startup business loan with no revenue or no money, you will likely qualify for better rates and terms once your business’s finances are stronger.
If you can’t afford to wait for a small-business loan, there are some loan and funding options available for businesses without revenue.
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🤓 Nerdy Tip
A startup is a business in the early stages of growth, which may include pre-revenue businesses or revenue-generating businesses that have been operating for a couple of years. For the purpose of funding, most banks consider businesses in operation under two years to be startups.Business loans for startups with no revenue
If you’re a startup — or any business — with limited funds, it’s unlikely you’ll be able to secure a traditional term loan or SBA loan. You may, however, be able to access these other financing solutions without money in the bank or revenue.
Microloans
Microloans are smaller loans (typically of up to $50,000 or less), and the lenders who issue them are usually nonprofits and mission-based organizations, including community development financial institutions (CDFIs). These loans tend to be low cost and are often designed for businesses in traditionally underserved communities.
Compared to other types of business loans, microloans tend to have more flexible qualification requirements. Lenders who offer microloans may be willing to work with startups and/or businesses with no revenue.
Equipment financing
The underwriting process for an equipment loan is a little different than that of a traditional term loan. The lender fronts you the cash to fund up to 100% of the purchase of a piece of equipment, and the equipment itself serves as collateral for the loan.
For that reason, lenders are just as concerned with the value of the equipment as they are with your business's financial performance. The terms of an equipment loan are based on credit (both business and personal), time in business and how well the equipment fits into your business plan. Revenue may not be as big of a factor.
Invoice financing
Invoice financing uses a business’s unpaid invoices as collateral. In exchange, invoice financing companies will front you a percentage of your unpaid invoices.
Invoice financing companies are focused on the value of your invoices as well as your business’s finances. As a result, startups with limited cash flow may have an easier time qualifying for this type of funding.
Invoice factoring
Similar to invoice financing, invoice factoring also uses unpaid customer invoices to provide capital for a business. With factoring, however, a business owner sells the unpaid invoices to a third-party factoring company. The factoring company then takes over the collection of payment from the business’s customers.
Like invoice financing companies, factoring companies typically focus on the creditworthiness of your customers and the age of your receivables, which can make factoring a good choice for startups with limited revenue and poor credit.
Business credit cards
A business credit card can boost your credit score and help your startup qualify for more business loans in the future if you use it responsibly (which, in large part, means paying your credit card bills in full and on time every month).
Cash flow can be important to credit card issuers, but many tend to care more about your personal creditworthiness. You’ll likely need good personal credit (a score of 690 or above) to qualify for most cards.
How to get a startup business loan with no money
Lenders determine how risky a particular borrower is in part by the amount of revenue they are generating. It’s important to understand what a lender is looking for, and what other positive attributes you can offer.
Offer collateral
Collateral is any valuable asset that a lender can use to recover its losses in the event that you are unable to repay your loan. Offering collateral like large equipment, real estate or cash, can improve your chances of getting approved for a startup loan, even without revenue. Securing your loan can also help you get better rates and terms.
Consider adding a cosigner
Adding another guarantor to take over loan payments in the event of a default, also known as a cosigner, is another way to mitigate a lender’s risk. Typically, you’ll benefit from a cosigner with excellent credit, large assets or both.
Because cosigners are often trusted family members or friends who believe in your business, you’ll want to consider this option carefully and your ability to repay the financing because defaulting on the loan will affect your cosigner’s finances and well as your own.
Know a lender’s requirements
Some lenders require borrowers to have a certain amount of money in their business bank accounts before they'll even consider extending a loan. But other lenders are a little more forgiving of cash flow if borrowers have a strong personal credit history or meet other business loan requirements. Make sure you know what a lender is looking for before you apply.
Determine whether you’ll be able to repay
If you’re not confident you’ll be able to repay a loan without money in the bank, you may end up having to borrow more to pay off your existing debt, which can trap you in a difficult debt cycle. In addition to covering your loan payments, you’ll also need to be able to cover your day-to-day expenses.
Loan payments vary based on your funding amount, interest rate and repayment term. Though you won’t know your exact numbers until your loan is approved, you can estimate your payments with our business loan calculator.
Some lenders may offer monthly payments, but startup business loans are more likely to require weekly or daily payments. If you can’t afford your potential loan payments, you might try searching for a more competitive option — or look for an alternative way to fund your business.
Pros and cons of startup loans with no money
Pros
Getting even a small amount of startup capital can help get your business off the ground, sustain and grow.
As opposed to forms of equity financing, startup loans allow you to keep full ownership and control of your business.
Paying off a business loan can establish business credit, which can help you get more competitive business financing in the future.
Cons
Because startup loans are considered risky, especially without revenue, they often come with higher rates and fees, making them an expensive form of financing.
Due to the risk, startup business loans often require a personal guarantee or other collateral.
Should you get a business loan with no money?
It may make sense to get a business loan with little to no revenue in the following instances.
When to get a business loan with no money | When to skip a business loan with no money |
|---|---|
You’re looking to grow your business. A capital injection to an early-growth-stage business can be crucial to get a company out of the startup phase and start generating real revenue. | You don’t have a strong revenue model. If your business is pre-revenue, your lender will want to understand how you’re going to make money. Make sure you’re clear on your business’s revenue model, and that you’re able to demonstrate it before applying for funding. |
You’re filling cash flow gaps. Invoice financing and factoring can make sense to cover cash flow gaps if you’re regularly waiting to get paid. This type of financing works well for B2B businesses that work on a contract basis. | You can’t afford the loan payments. Make sure you understand the monthly loan payments and how they will fit into your business's budget. If you take on too much and get behind on payments, you could wind up in a cycle of debt and potentially even lose your business. |
You want to retain ownership of your business. Equity financing is a common way to finance a business with no money; however, it means trading ownership stakes and possible control in your company. If retaining full ownership is important to you, a business loan is the best way to go. | You can afford to wait. Business loans with no money pose additional risks to lenders, making them more expensive than traditional loans. If your business can afford to wait until it’s bringing in strong revenue, you may be able to save a lot of money on interest. |
Alternatives to getting a business loan with no money
The best alternative to getting a business loan with no money may be waiting and building your revenue, but that won’t be practical for everyone. Here are some other options to consider:
- Equity financing. Equity financing can be used to raise funds through the sale of shares or a stake in your business — this may be an option if you’re unable to find startup business loans with no revenue. Although you won’t incur loan debt with this type of financing, investors who have purchased stock will receive an ownership share in your business.
- Crowdfunding. If you’ve just launched your business, you might consider crowdfunding, another zero-debt financing option that lets others invest in your idea. Not only can it help you raise capital for your business, but it may also be a way to raise awareness of your products and services.
- Business grants. More established businesses with no revenue might try to qualify for small-business grants. Not every business will meet eligibility requirements — and competition can be fierce for this free money — but funding is available.
- Friends and family loans. Asking for business loans from family and friends is a common method of getting a business off the ground. However, to avoid misunderstanding with anyone who is investing in your startup, it’s important to share your business plan, be transparent about the risks and put your agreements in writing.
» MORE: How to get startup funding
How to start a business with no money
If financing your business through a loan or alternative funding method isn’t an option, you can choose to bootstrap your business, or start your business with little to no money. Here are some tips to help you begin the process:
Write a business plan
A business plan is valuable regardless of the size of your business. It’s your roadmap for starting and managing your business and can often be useful in getting others to buy into your business idea. It’s also a document that will change as your business grows.
Initially, you may want to include key sections such as company description, business goals, product and services descriptions, market research and sales plan. As your business grows, you can add other sections like business financials and financial projects.
Launch a scaled-down version of your business
If you rely on a full-time job to pay your bills and don’t have other income sources, consider starting your business as a side hustle. This could mean restricting your freelance business activities to evenings and weekends, or employing small-scale production activities. Once your business starts to gain traction, you can transition it from a side gig to a full-fledged business.
Take advantage of free resources and services
No matter the stage of your business, there are free resources available. For example, even if you don’t qualify for an SBA loan through the Small Business Administration, you can access free training, mentoring and other services through SBA resource partners: Small Business Development Centers, SCORE business mentors, Veterans Business Outreach Centers and Women’s Business Centers.
Also, look for local business workshops and networking opportunities in your area that are free or only require a nominal fee.
Take a second look at crowdfunding
As we discussed earlier, crowdfunding is an alternative funding method. If you’re an entrepreneur with no funding, popular sites like Kickstarter and Indiegogo may be an option to raise money for your business. These sites can also be a way to promote your product or service and add more customers to your contact database.
Find the right business loan
The best business loan is generally the one with the lowest rates and most ideal terms. But other factors — like time to fund and your business’s qualifications — can help determine which option you should choose. NerdWallet recommends comparing small-business loans to find the right fit for your business.
Frequently Asked Questions
Yes, some lenders offer business loans for bad credit to startups with limited revenue. You’ll likely need at least six months in business and a credit score of 600 to qualify.
These options, however, may have higher interest rates and shorter repayment terms.
Yes. In general, most lenders require that their borrowers sign a personal guarantee. If you have no revenue, you pose a greater risk to the lender, which means they’re even more likely to ask you to sign a personal guarantee.
It’s very unlikely to get a no credit check business loan with no revenue. Most lenders will require a credit check at some point in the application process, even if it’s only a soft pull that doesn’t impact your credit score.
Although there are some loans available that don’t require a credit check, these are typically offered by payment processors who evaluate eligibility based on sales you make through their platform.
When you have no startup money, consider launching a scaled-down version of your business or side hustle — and keep your full-time job. You’ll also want to create a basic business plan and take advantage of the free resources offered by the SBA.
A version of this article originally appeared on Fundera, a subsidiary of NerdWallet. Forest Sisk contributed to this article.
