There are so many driving factors behind the search for a small business loan, but the most common of all is to get access to cash so you can nurture your business. If you’re low on cash, it makes a lot of sense that you’d want to apply for financing. So, you’re probably wondering how to get a business loan with no money—if that’s even a possibility.
Getting a business loan with no money
Across industries, a common thread among businesses is the need for capital. Sure, a freelance consultant’s needs are going to be different than a restaurateur’s, but both need money to run their businesses successfully. The catch-22 lies in the fact that lenders often require that you have money in the bank already before you can qualify for a business loan to get more money.
You might have disposable funds that you just don’t want to tap into to apply for a business loan. Other times, you just might not have the cash flow a lender is looking for to be approved for a business loan. Whatever the scenario, we’ll take a closer look at how to get a business loan with no money in the bank.
When you might need to get a business loan with no money
Before we get into exactly how to get a business loan with no money, let’s take a step back:
What are some common causes for a low-to-zero balance in your business bank account?
Figuring out the why can help you know what exactly to do next:
1. You’re waiting to get paid.
Many businesses (almost all B2B companies, actually – including construction, trucking, consulting) work on a contract basis. As a result, sometimes you need to wait for weeks or months after services are rendered to receive your payment.
As you’re waiting, you don’t have the luxury of being able to sit around before you start your next job, contract, or project. As they say, “Time is money.” So, you start that next project because, quite simply, you have to.
Until you get paid, you’re still incurring expenses. That’s when the funds in your account begin to shrink instead of grow. Cash flow problems associated with invoicing are a problem for many small business owners.
2. Your business is struggling to scale due to resources.
When you first opened up shop, you probably used startup-sized resources to get your business off the ground. But that small pool of resources you started out with can’t keep up with your growing business.
The truth is, bigger businesses need bigger amounts of capital to thrive. One of a small business loan’s many uses is to provide that additional capital boost. With your loan, you can replenish inventory to meet your customers’ growing demands, hire more employees, even open up a second location—whatever it takes to keep up with your own growth. But if you’ve wiped your original reserves clean, you’ll have a hard time securing that business loan at all.
So, when drawing up your business plan, it’s important to factor in the inevitability of scaling.
You’ve worked hard to get your business to where it is today; so you want to make sure that, when you kick things into growth mode, a lack of funds doesn’t bring you to a screeching halt.
3. You’ve mixed personal and business finances.
For a whole host of reasons, financial advisors recommend separating your personal and business finances. But this is a tricky issue, and everyone handles it differently.
Depending on your lifestyle, industry, and countless other factors, it can be hard to know how much of the money you earn should stay within your business and how much should go to paying down your mortgage. After all, you founded your business on the belief that this is your livelihood: It might have been your dream, but now it’s very much a reality. Even if your personal and business cash flows are indeed separate, it can be tough to view them as such.
Here, too, it’s important to plan exactly where funds will be heading on both a personal and business level. It can be all too easy to pull too much from your business bank account to pay for that mortgage, or any other countless personal expenses you encounter on a daily basis.
A healthy business bank account should never dip below zero, resulting in the dreaded “non-sufficient funds.” In order to avoid this, leave an extra couple of thousand dollars sitting in your business checking account.
At the very least, this is a rainy day fund. In its truest form, that cash cushion can mean the difference between success and failure, especially when it comes to getting a business loan with no money down or in the bank.
How to get a business loan with no money: The importance of cash flow
If you’ve applied for a business loan before, or at least looked into it, you likely know that small business lenders often reject candidates who don’t have a cushy bank account balance to back up their applications. But if you need to get a business loan with no money, you should understand why lenders care about cash flow in the first place.
At the most basic level, cash flow indicates the health of your business. Positive cash flow means there’s more money heading in your direction, and a negative cash flow often means a business is struggling.
Of course, you care most about your cash flow in terms of how it’ll affect your day-to-day operations. But as soon as you land in the small business financing market, your solvency is important to lenders, as well. How do lenders determine whether they feel comfortable extending you a loan? In large part, by investigating your cash flow.
How lenders see cash flow and assess risk
As mysterious as they might seem, lenders are actually pretty easy to understand, especially when you’re considering their business loan requirements. One of their most crucial requirements is cash flow.
Some lenders require a certain amount of funds in a potential borrower’s business bank account before they’ll even consider extending a loan. Other lenders are a little more forgiving of cash flow, as long as other requirements like personal creditworthiness are strong.
Every time a lender extends a loan, they’re taking a big risk. They need to know that a borrower is able to manage additional debt, and has the financial capacity to repay that debt in full.
So, the terms of a loan are always a reflection of that risk. If lenders deem a business risky, they’ll hike up the interest rate, increase payment frequency, and shorten the repayment period. If they view a business as low risk, the opposite will occur.
Low bank balances are a big contributing factor toward a riskier business assessment. A major reason for this is that loans operate on automatic withdrawals. If your loan requires you to make weekly payments of $400 but you never have more than $1,000 in your account, chances are you won’t be able to consistently pay your loan bills in full and on time. Needless to say, this isn’t a good situation for you or the lender.
Overall, it makes sense that lenders construe positive cash flow—or sufficient money in the bank—as an indication of a business’s reliability. And that’s why, on the flip side, it can be tough to get a business loan with no money in the bank.
Getting a business loan with no money: The top 3 options
As you can imagine, it’s tough to get a small business loan with no money. And while it’s unlikely that you’ll be able to secure a traditional term loan or SBA loan with limited funds, you have other financing solutions available to you.
If you’re thinking about how to get a business loan with no money, you might have an easier time qualifying for the following financing solutions. And, if you do, these alternative loans can help boost your business’s cash flow, so you can be in a position to graduate to a small business loan that yields even larger amounts of cash.
1. Business credit cards
Your business’s biggest expenses, like payroll and rent, will require loan-sized funds to satisfy. But you can meet the countless other expenses you face daily with a business credit card. Plus, using a credit card responsibly (which, in large part, means paying your credit card bills in full and on time every month) will boost your credit score and help you qualify for more business loans in the future.
Cash flow is important, but credit card issuers care more about your personal creditworthiness as a crucial factor in the business loan application.
There are countless business credit cards on the market today, and they all come with perks, rewards, and features that match the reason you’re looking for funds in the first place.
As we said before (and as you’ve definitely heard before that), it takes money to make money. Using a cash back business credit card is case in point: Spending in certain categories earns you hard cash, which you can then reinvest back into your business.
2. 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 a piece of equipment, and they use the equipment itself as collateral.
For that reason, lenders are just as concerned with the value of the equipment itself as they are with your business’s financial record. 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. Cash flow isn’t a major factor in that decision.
If you’re looking for a new machine, computer, or vehicle to boost revenue, it makes a lot of sense to look into an equipment loan.
3. Invoice financing
Invoice financing ties back to a situation we discussed earlier: When you’re waiting to get paid for completed work and expenses keep adding up. Fortunately, there are lenders who can analyze those unpaid invoices and extend funds to you ahead of time, so you don’t need to wait idly by until you get paid.
Like equipment loans, invoice financing is a type of collateralized loan. In this case, invoice finance companies use your business’s unpaid invoices as collateral and, in exchange, they’ll front you 80% to 90% of the missing cash. You’ll get the rest, minus the invoice financing company’s fee, when your customer pays the invoice.
As with an equipment loan, invoice financing companies are just as concerned with the value of your invoices as they are with your business’s finances. So businesses with limited cash flow might have an easier time qualifying for this type of loan than others.
The best solution to get a business loan with no money
If you’re looking into how to get a business loan with no money, it’s definitely worthwhile to look into these financing solutions. But, in reality, the best course of action is a little less exciting. If you can wait, wait!
You’ll have the best luck getting a business loan with favorable terms when your business’s financials are in order. In the meantime, focus on saving and running a lean business.
Ask yourself: “What costs can I cut without fundamentally undoing what I do best?” You may be surprised by how much your business can save by making a few operational changes. Also, create a specific savings goal and adjust your budget accordingly. Open up a separate business checking account that you automatically transfer funds into intermittently.
Once you build up your business’s cash cushion, both the lending world and your own world will become so much easier to manage.
Forest Sisk contributed to this article.
How to Get a Loan to Buy a Business
Not everyone wants to take on the challenge of building a business from the ground up. An attractive alternative can be to step into a business that’s already up and running by purchasing it from the current owner. Some advantages of buying a business may include easier financing, an established customer base and an existing cash flow.
Buying a business is different from buying a franchise. Franchises have a set business model that’s proven to work. However, when you buy an independently operated business, it’s important to show the lender that you, your previous business experience and the business you want to buy are a winning combination.
What lenders look at when you want to buy a business
Because lenders can view the performance record of an existing business, it’s typically easier to get a loan to purchase an existing business compared with startup funding. However, your personal credit history, experience and details about the acquisition business still matter.
Your personal credit and experience
Through credit reports and credit scores, lenders are able to assess how you’ve managed debt in the past and potentially gain insights into how you will handle it in the future. Your education and experience will also be evaluated.
Solid credit history: Lenders look to see if you have a history of paying your debts. Foreclosures, bankruptcies, repossessions, charge-offs and other situations where you haven’t paid off the full amount will be noted.
Business experience: Having worked in the same industry as the business you want to purchase is helpful. Related education can also be viewed as a positive.
Other businesses you’ve owned
Having a track record of operating other successful businesses can have a positive influence on lenders when it comes to buying a new operation.
Record of generating revenue: Business financial statements can help a lender document that your current or past businesses were well-managed and turned a profit.
Positive credit record: Lenders review business credit scores and reports to verify creditworthiness and to identify liens, foreclosures, bankruptcies and late payments associated with your other businesses.
The business you want to buy
Just because a business is operating doesn’t mean it’s a good investment. Lenders will ask for documentation, often provided by the current owner, to assess the health of the operation.
Value of the business: Like you, your lender will want to ensure that you’re buying a business that has value and that you’re paying a fair price.
Past-due debts: Lenders will be interested in the business’s past-due debts, which may include liens, various types of taxes, utility bills and collection accounts.
Most lenders will let you know what they want included in the loan application package, but there are some personal documents that are typically requested, as well as ones related to the business you want to purchase.
The following documents are used to evaluate your personal finances, business history and plans for operating the business after its purchase:
Personal tax returns.
Personal bank statements.
Financial statements for any of your other businesses.
Letter of intent.
Documents from the current business owner will also be evaluated. Some common ones requested by lenders include:
Business tax returns.
Profit and loss, or P&L, statements.
Business balance sheet.
Proposed bill of sale.
Asking price for inventory, machinery, equipment, furniture and other items included in the sale.
Where to get a loan to buy a business
Compared with finding a loan to start a business, getting funding to buy an existing business may be easier. Here are three popular funding options to check into for a business loan:
Banks generally offer the lowest interest rates and best terms for business loans. To qualify for this type of loan, you’ll typically need a strong credit history, plus the existing business will need to be in operation for a certain minimum of years and generate a minimum annual revenue amount set by the lender.
If borrowers don’t qualify for a traditional bank loan, then SBA loans, ones partially guaranteed by the Small Business Administration, may be the next option to explore. Because there is less risk to the lender, these loans can be easier to qualify for. Banks and credit unions frequently offer SBA loans in addition to traditional bank loans.
Online business loans
Another option to consider is online business loans. Online business loans may offer more flexibility when it comes to qualification, compared with bank and SBA loans. Minimum credit score requirements can be as low as 600, and in a few cases lower. Generally, interest rates are higher than what’s available with a traditional bank loan.
Accounts Receivable Financing: Best Options, How It Works
Accounts receivable financing, also known as invoice financing, allows businesses to borrow capital against the value of their accounts receivable — in other words, their unpaid invoices. A lender advances a portion of the business’s outstanding invoices, in the form of a loan or line of credit, and the invoices serve as collateral on the financing.
Accounts receivable, or AR, financing can be a good option if you need funding fast for situations such as covering cash flow gaps or paying for short-term expenses. Because AR financing is self-securing, it can also be a good choice if you can’t qualify for other small-business loans.
Here’s what you need to know about how accounts receivable financing works and some of the best options for small businesses.
How Much Do You Need?
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How does accounts receivable financing work?
With accounts receivable financing, a lender advances you a percentage of the value of your receivables, potentially as much as 90%. When a customer pays their invoice, you receive the remaining percentage, minus the lender’s fees.
Accounts receivable financing fees are typically charged as a flat percentage of the invoice value, and generally range from 1% to 5%. The amount you pay in fees is based on how long it takes your customer to pay their invoice.
Here’s a breakdown of how the process works:
You apply for and receive financing. Say you decide to finance a $50,000 invoice with 60-day repayment terms. You apply for accounts receivable financing and the lender approves you for an advance of 80% ($40,000).
You use the funds and the lender charges fees. After receiving the financing, you use it to pay for business expenses. During this time, the lender charges a 3% fee for each week it takes your customer to pay the invoice.
You collect payment from your customer. Your customer pays their invoice after three weeks. You owe the lender a $4,500 fee: 3% of the total invoice amount of $50,000 ($1,500) for each week.
You repay the lender. Now that your customer has paid you, you’ll keep $5,500 and repay the lender the original advance amount, plus fees, $44,500. You paid a total of $4,500 in fees, which calculates to an approximate annual percentage rate of 65.7%.
Because accounts receivable financing companies don’t charge traditional interest, it’s important to calculate your fees into an APR to understand the true cost of borrowing. APRs on accounts receivable financing can reach as high as 79%.
Accounts receivable financing vs. factoring
Accounts receivable financing is often confused with accounts receivable factoring, which is also referred to as invoice factoring. Although AR financing and factoring are similar, there are differences.
With invoice factoring, you sell your outstanding receivables to a factoring company at a discount. The factoring company pays you a percentage of the invoice’s value, then collects payment directly from your customer. When your customer pays, the factoring company gives you the rest of the money you’re owed, minus its fees.
With accounts receivable financing, on the other hand, your invoices serve as collateral on your financing. You retain control of your receivables at all times and collect repayment from your customers. After your customer has paid their invoice, you repay what you borrowed from the lender, plus the agreed-upon fees.
Invoice factoring can be a good financing option if you don’t mind giving up control of your invoices and you can trust a factoring company to professionally collect customer payments. If you’d rather maintain control of your invoices and work directly with your customers, AR financing is likely a better option.
Best accounts receivable financing options
Accounts receivable financing is usually offered by online lenders and fintech companies, many of which specialize in this type of business funding. Certain banks offer AR financing as well.
If you’re looking for a place to start your search, here are a few of the best accounts receivable financing companies to consider.
A division of the Southern Bank Company, altLINE is a lender that specializes in AR financing. AltLINE offers both accounts receivable financing and invoice factoring, working with small businesses in a variety of industries, including startups and those that can’t qualify for traditional loans.
AltLINE offers advances of up to 90% of the value of your invoices with fees starting at 0.50%. To get a free quote from altLINE, call a representative or fill out a brief application on the lender’s website. If you apply online, a representative will contact you within 24 hours.
AltLINE’s website also contains a range of articles for small-business owners, covering AR and invoice financing, payroll funding, cash flow management and more. AltLINE is accredited by the Better Business Bureau and is rated 4.7 out of 5 stars on Trustpilot.
1st Commercial Credit
1st Commercial Credit offers accounts receivable financing in addition to other forms of asset-based lending, such as invoice factoring, equipment financing and purchase order financing. The company works with small and medium-sized businesses, including startups and businesses with bad credit.
With 1st Commercial Credit, you can finance $10,000 to $10 million in receivables with fees ranging from 0.69% to 1.59%. You can start the application process by calling a sales representative or filling out a free quote form on the company’s website. After your application is approved, it typically takes three to five business days to set up your account, then you can receive funds within 24 hours.
1st Commercial Credit is accredited by the Better Business Bureau and has an A+ rating.
Porter Capital is an alternative lender specializing in invoice factoring and accounts receivable financing. The company also has a special division, Porter Freight Funding, which is dedicated to working with businesses in the transportation industry.
With Porter Capital, you can receive an advance of 70% to 90% of your receivables and work with an account manager to customize a financing agreement that’s unique to your business. Porter funds startups and established businesses, offering fees as low as 0.75% monthly.
You can provide basic information about your business to get a free quote and receive funding in as little as 24 hours. Although Porter Capital isn’t accredited by the Better Business Bureau, it does have an A+ rating; the company also has 3.7 out of 5 stars on Trustpilot.
Although AR financing and factoring are distinct, many companies blur the lines between the two. As you compare options, make sure you understand the type of financing a lender offers.
If you decide that invoice factoring may be a fit for your business, you might consider companies like FundThrough, Triumph Business Capital or RTS Financial.
Find and compare small-business loans
If accounts receivable financing isn’t right for you, check out NerdWallet’s list of the best small-business loans for business owners.
Our recommendations are based on the market scope and track record of lenders, the needs of business owners, and an analysis of rates and other factors, so you can make the right financing decision.
SBA Loan Collateral vs. Guarantee: What’s the Difference?
Personal guarantees and collateral are both ways of promising a lender that you’ll make good on your debt. You may have to offer both to get an SBA loan.
Collateral ties a loan to a specific asset, like your business’s inventory or your home, which the lender can seize if your business can’t repay the loan. A personal guarantee promises the lender that you will repay the debt using your personal assets, but may not specify how.
In general, SBA lenders require anyone who owns 20% or more of a business to provide a personal guarantee. SBA loans larger than $25,000 usually require collateral, too.
Do SBA loans require a personal guarantee?
SBA loans usually require unlimited personal guarantees from anyone who owns more than 20% of a business. Lenders may ask for limited or unlimited personal guarantees from other business owners, too.
Unlimited personal guarantee: This is a promise that the guarantor (the business owner) will pay back the loan in full if the business is unable to. The lender doesn’t have to seize collateral or seek payment from any other source before going straight to the loan applicant for loan repayment.
Limited personal guarantee: If you own less than 20% of a business, you may have the option to sign a limited personal guarantee instead. The limited personal guarantee caps the amount you’ll have to pay the lender, either as a dollar limit or a percentage of the debt.
Limited personal guarantees can be secured by collateral, which means the lender will seize those assets when they recoup payment instead of asking you to pay back a certain dollar amount.
Who has to personally guarantee an SBA loan?
The SBA requires personal guarantees from:
Individuals who own more than 20% of a business.
Spouses who own 5% more of the business, if their combined ownership interest is 20% or more.
Trusts, if the trust owns 20% or more of the business.
Trustors, if a revocable trust owns 20% or more of the business.
SBA lenders may require additional personal guarantees.
Do SBA loans require collateral?
For SBA 7(a) loans of between $25,000 and $350,000, SBA lenders have to follow collateral policies that are similar to the procedures they’ve established for non-SBA loans. Banks and credit unions are usually the intermediary lenders for SBA 7(a) loans.
If you use an SBA loan to finance specific assets, like an equipment purchase, the lender will take a lien on those assets as collateral. The lender may also use your business’s other fixed assets as collateral, and you may have to offer personal assets, too.
For SBA 7(a) loans larger than $350,000, SBA lenders need collateral worth as much as the loan. The lender will start with your business assets. If they need more collateral, the SBA requires them to turn to the real estate you own personally, as long as you have at least 25% equity in the property.
Live Oak Bank is the largest SBA 7(a) lender in the U.S. by volume. Its loans may require collateral in the form of:
Commercial real estate.
What if I can’t provide collateral or a personal guarantee?
If you’re seeking any type of SBA loan, there’s a good chance you’ll have to provide both collateral and a personal guarantee. Even SBA microloans usually require collateral and a personal guarantee. Without them, you’ll have trouble getting an SBA loan.
Some online lenders offer unsecured business loans, which don’t require collateral. But you may still have to sign a personal guarantee.