Are you an entrepreneur looking for startup business loans with no revenue requirements? Look no further, as I’m here to guide you through the process, from understanding your financing needs to preparing your application. While securing funding with limited financial resources or credit history can be challenging, it isn’t impossible if you prepare accordingly and work with the right lender. Let’s go through what to expect, including the loan types you might be eligible for and how to get funding.
Step 1: Understand your financing needs & potential loan options.
Before applying for any form of financing, you should evaluate what your funding needs are, inclusive of what you intend to ask for in terms of loan amount, interest rate, and repayment schedule. Planning for these factors will allow you to simplify the process of finding an applicable lender and filling out your application.
Important factors to consider
- Intended use of funds: You want to ensure you don’t borrow too much or too little in the event that you can’t afford to repay the loan or that the issued funds don’t cover the entirety of your business needs. Take the time to determine exactly how much funding you might need and how those funds will be applicable to your business operations and growth.
- Your repayment budget: Interest rates and repayment terms will play a large role in determining what you can afford in terms of financing. Consider how much you can put toward repayment each month or whether you need to seek repayment terms that lower or delay payments, such as interest-only terms or balloon payments.
- Return on investment (ROI): It’s important to ensure that entering into debt offers some form of return for your business. Whether it be to scale operations, purchase new equipment or inventory, or provide for other working capital needs, be sure to plan for the long term and make the effort worthwhile.
Step 2: Research potential loan options.
Startups, or early-stage businesses under two years old, can often have trouble securing financing if they don’t have a financial track record for lenders to assess their creditworthiness. While you might be ineligible for traditional business loans such as a term loan, there are startup business loans and other financing solutions you can consider. That said, no-revenue loan types might be a bit more limited, so keep that in mind when researching potential options.
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Step 3: Determine eligibility criteria and what lenders look for.
As a startup, qualifying for certain loan types and lenders may be considered a challenge due to the level of risk that’s commonly involved. To have the most options and best odds of getting approved, you’ll want to put your best foot forward and strengthen your finances and creditworthiness as much as possible.
Just as you would in getting a small business loan, you should determine what your qualifications are, which will help you manage shopping around for a lender in later steps. You should also consider what you can offer in terms of security, which may help your ability to get favorable rates and terms.
- Credit score: It’s likely that, as a startup or early-stage business, your credit history may be limited. Still, lenders will commonly look at your credit report as a snapshot of how you’ve managed your finances. A business credit score plays an important role in securing financing, but lenders that are startup-friendly might rely more heavily on other factors or your personal credit if you’re just getting started.
- Time in business: Startups are generally considered to be businesses that have been operating for less than two years. It’s common that lenders will typically want to see anywhere from 6 to 24 months of operations when issuing financing; however, this can be flexible and be supplemented by a well-drafted business plan to demonstrate your operational projections to the lender.
- Business finances: Lenders will want to know what you expect in terms of cash flow, expenses, and your financial ratio analysis. You’ll likely need to showcase your current revenue projections, your cash on hand, and any other debt obligations you might have.
This might be the most important aspect of obtaining financing as a startup with no revenue. To offset the risk to the lender, it’s worth offering collateral where you can or introducing a cosigner with the resources and qualifications to vouch for you.
- Types of collateral: Collateral is a great way to leverage having no revenue and can be an asset that has enough value that, if liquidated, could help the lender recoup losses in the event of loan default. Essentially, it provides the lender with a bit of a cushion to fall back on and allows you to provide something of monetary value outside of a down payment. This commonly includes assets such as real estate, equipment, inventory, and invoices.
- Getting a cosigner: Another form of leverage can involve utilizing a cosigner who promises to make payments on your behalf in the event you’re delinquent with repayment. It can also be a solution that can help to increase your overall odds of approval, as the lender will then have someone with a track record of creditworthiness and someone to turn to in order to recoup financial losses if necessary.
Before entering into any debt agreement, you’ll need to do the following:
Step 4: Shop around for an applicable lender.
Working with the right lender is crucial. There are various types of lenders to consider when starting your search, and you should consider multiple options before settling on the first lender you come across that’s willing to issue financing. There are also a few key elements that you should keep in mind when determining which provider might best suit your business financing needs.
Types of lenders
Choosing the right lender
When comparing and choosing a lender, there are a few key factors that you should take into consideration before applying.
- Loan types offered
- Minimum qualification criteria
- Rates and fees
- Repayment terms
- Prepayment penalties
- Funding timeline
- Customer service
Step 5: Prepare your application and documentation.
Once you’ve chosen the lender you want to apply for, you’ll need to prepare your loan application and supplemental documents. This can commonly be completed online or sometimes at a physical branch if required by the lender.
The application will require you to provide both personal and business details, and documentation requirements may vary depending on the loan type and lender. That said, you should gather all necessary information and materials beforehand and work with the lender to streamline the process. If your application is approved, it will move to the underwriting process before it’s facilitated and funds are issued.
Common documentation requirements
If you have the following materials, I recommend having them readily available in the event the lender requests further information along with your application.
- Business and personal tax returns, as applicable
- Bank statements
- Financial statements, as applicable (profit & loss, balance sheets, etc.)
- Lease agreements
- Invoices
- Business plan
- Business licenses, permits, etc.
What to expect after applying
If you have submitted your application and are wondering what happens next if you’re approved, here’s what you can typically expect:
Underwriting is the stage where the lender takes a final, detailed look at your application to ensure it aligns with its approval standards. That includes verifying the information you’ve provided and assessing your business details and current finances. It’s normal for the lender to reach out for extra details or clarification during this step, and the process typically is completed within one to three business days.
If the lender approves your application and you meet the necessary criteria, you’ll commonly be issued a term sheet that outlines the various loan terms and details such as rates, fees, and repayment structure. It’s important to review this document closely before proceeding, and this would be the time to negotiate or clarify details with the lender. I also recommend looking out for specific details that mention prepayment penalties or other associated fees, along with funding stipulations or restrictions.
Once you’ve reviewed and accepted the outlined loan terms and conditions, the lender will finalize the details and draw up the necessary documentation to facilitate the loan. The timeline of this step will vary greatly depending on the lender and loan type. Expect anywhere between a few days and a few weeks.
After the final documents are drafted, you and the lender will sign the required paperwork. Once it’s fully executed, reviewed, and implemented, the lender will issue loan funds for its intended use as outlined in the agreement.
Pros & cons of startup business loans with no revenue requirements
| PROS | CONS |
|---|---|
| Don't always require a down payment, aiding in no-revenue loan options | May have higher rates and fees than traditional business loans |
| Can help establish business credit | Can be considered risky and have various collateral requirements or stipulations |
| Can provide your business with working capital to boost cash flow and operations | Limits available financing options for businesses with no revenue history |
Common challenges & risks to be aware of
Getting a startup business loan without money is not without challenge or risk. It’s important to understand the various elements associated with applying and how to mitigate risk for both yourself and the lender.
Cash flow management | You'll need to plan accordingly and stay on top of your finances to ensure you are growing your cash flow, maintaining your budget, and meeting your loan terms as agreed. Failure to do so can incur late fees and delinquency notices and may result in your business shutting down. |
Higher rates and fees | Startup loans come with a higher risk than other loan types. If you don't have established creditworthiness for lenders to lean on, they have to mitigate the risk of issuing financing by imposing higher rates and fees on certain loan types. Factor this into your long-term budget, and shop for a lender with the best deal. |
Repayment terms | Repayment structures can vary by loan type and lender. Your budget will be important, especially if you owe monthly principal and interest installments. Consider whether your budget might benefit from an interest-only structure so that you can keep payments low until you ramp up operations and cash flow. |
Loan default | If you miss payments and end up in default, there could be consequences that impact both personal and business financials. The lender will need to recoup losses, and you may be subjected to asset seizure or other legal action. Be sure to consult your loan agreement for specific details and potential penalties. |
Alternatives to startup business loans
If you think that a business loan might not be the right fit, don’t fret; there are other avenues you can explore.
- Rollover for Startup Businesses (ROBS): This allows you to access your retirement account tax- and penalty-free and use the funds for business purposes. Notably, you won’t have monthly payments or interest expenses since it’s not a loan. That said, a minimum investment of $50,000 is typically required. Since it can be a rather complicated transaction, I recommend working with an experienced company like Guidant Financial. Learn more through our Guidant Financial review.
- Business credit card: Another notable option to consider might be a business credit card. As a revolving credit facility, you can use and repay funds on an as-needed basis, and rarely will you have to go through the obstacles of lengthy lending paperwork or wait long for a lending decision. You can check out our picks for the best small business credit cards for options.
- Business grant: This is a great way to apply for funding without having to enter into debt. A wide variety of business grants are available, and they often are free or require minimal fees and materials to apply. Generally, you should prepare your business plan to supplement the required application, so be sure to have that on hand. See our roundup of the best small business grants.
- Crowdfunding: This is a way to market your business and attract a variety of investors looking to support a business they’re interested in. There are various return options, whether it be rewards-, debt-, donations-, or equity-based. It’s generally considered a low-risk endeavor, and you can promote your business through a fundraising platform. For more information, see our guide on how to crowdfund a business.
- Angel investors: Angel investors specifically target high-potential businesses and provide them with seed money in exchange for equity within a company. Usually, these are high value individuals or firms with industry experience and a strong investment portfolio. Our article on how to raise angel funding can help you decide if this might be a viable option for your business.
- Friends and family loan: This less formal debt-based option allows you to approach friends and family to invest in your business. While it still requires an applicable federal rate, it usually has lower interest rates and more flexible repayment terms than traditional business financing. To see if this might be right for you, read our guide on raising money from friends and family to fund your business.
Frequently asked questions (FAQs)
Yes, it is possible to get financing with the right lender. Just keep in mind that it might be more challenging to find a lender that meets your business needs and budget if you are just starting out and have yet to build your creditworthiness.
Generally, startup loans are more difficult to get than traditional business loans. This mainly stems from lenders preferring to work with established businesses with a track record of cash flow and operations to help mitigate risk. Startups tend to pose more risk, so lenders may have certain qualifications or stipulations that may make it more difficult to be approved.
Some lenders do, yes. You’ll likely need to secure the loan in other ways, whether it be via collateral or a cosigner. While you might not have to provide a down payment for certain loan types, you should aim to make your lending application as strong as possible and demonstrate how you plan to repay the loan.
Bottom line
Getting financing to fuel your startup can seem like a daunting task. Don’t let the fear of not having existing funds scare you away from applying for no-revenue business loans, as there are startup-friendly lenders out there. I encourage you to put your best foot forward and work closely with your chosen lender to ensure the process is seamless and meets your business needs. That said, consider whether getting a business loan is the best route, and consider all your options carefully.
