Best Business Loan Options for Your Startup with No Revenue
If you don’t have enough revenue to qualify for a traditional loan, here are a few sources of startup business loans with no revenue:
Tip #1: Unsecured Business Loans
Unsecured business loans are based on the creditworthiness of your company, rather than any collateral you may offer (such as equipment). They’re also available at lower interest rates and longer repayment terms than secured loans.
American Business Credit specializes in unsecured business loans, especially for startup businesses with no revenue. We have been in this market for decades and have worked with businesses both large and small. Your startup is an opportunity, not spoiled milk.
Tip #2: Business Cards
Many credit card companies offer 0% APR introductory rates on new cards. This can be a great way to finance a startup without revenue, especially if you can repay the balance before the promotional rate expires.
APR Defined
The APR on a credit card is the annual percentage rate. This is the cost of borrowing money expressed as an annual percentage. This number includes both the interest charged and any fees associated with the card. For example, if you have a balance of $2000 on your card and the annual percentage rate is 18%, you will owe $360 in interest for the year.
How to Qualify for a Business Credit Card
To qualify for one of these cards, you’ll need good or excellent credit. And remember, even if you don’t carry a balance from month-to-month, interest will still accrue on any purchases made with the card. So, make sure to pay off your bill in full every month!
Tip #3: Equipment Financing
Equipment financing loans are a great way to get the money you need to purchase new or used business equipment without having to wait until your business has generated enough revenue.
Hypothetical Equipment Financing Loan
Here’s an example, let’s say you want to buy a new computer for your office, but don’t have the cash on hand right now. You could take out an equipment financing loan and use that money to pay for the computer. As long as you make your monthly payments, the loan will be paid off over time and you’ll be able to enjoy all the benefits of owning that new computer!
Considerations for an Equipment Financing Loan
If you’re thinking about taking out an equipment financing loan, there are a few things you should keep in mind. First, make sure you know how much the loan will cost you in interest. Second, be sure to read the terms and conditions of the loan carefully so you know what’s expected of you. Third, make sure you can afford the monthly payments.
Equipment financing can provide the financial boost startups need in order to acquire necessary tools, machinery or vehicles.
Tip #4: Invoice Financing
Another option for businesses who need capital but don’t have the revenue to back it up is invoice financing, a type of loan that allows businesses to borrow money against their outstanding invoices. This can be a great option if you’re waiting on payments from customers but need the money now.
Factoring & Discounting
There are two types of invoice financing: factoring and discounting. Factoring involves selling your invoices to a third party (called a factor) in exchange for cash. The factor will then collect payment from the customer on behalf of the business. Discounting involves borrowing money against the value of your invoices, which means you’ll get less cash up front but won’t have to worry about collecting payments from customers yourself.
Both factoring and discounting can be a great option if you need money fast, but it’s important to shop around and compare rates before you decide which one is right for you. You also want to make sure the company you’re working with is reputable and has a good track record.
If you are unsure which route you should go with your startup business, contact us at American Business Credit and we can help guide you and your business in the right direction.
Impact of No Revenue on Startup Business Loans
Securing a business loan for your startup with no revenue can be critical in implementing robust digital-marketing strategies vital for driving web traffic. You can use these funds to boost online marketing channels such as SEO, PPC advertising, content marketing and social media promotion.
For example, a startup may create high-quality, SEO-optimized content that attracts organic traffic. Other companies could use the funds to launch PPC campaigns to reach a larger audience quickly. Therefore, the financial boost is instrumental in building a strong online presence, attracting more visitors to the website and ultimately generating revenue.
Running a business requires money; a loan is one of the most common ways to get it. Obtaining a loan can be challenging if your business has not yet generated revenue or profits. The beauty is that you can maneuver the stress of financing a loan by researching and considering the following options.
1. Make Sure You Have a Solid Business Plan
It’s important to have a solid business plan with concrete goals, projections and benchmarks for success to show lenders that your business is viable. You can hire an expert to help you develop a comprehensive and convincing plan. The professional should address your realistic expenses and revenue projections to prove that your business can reach profitability. Also, they should outline the target market and how to face competition in your market space. The plan should have efficient strategies to beat the competition, attract customers and generate more sales.
2. Demonstrate Steady Revenue and Profitability
Although you haven’t earned any revenue, you can show lenders you have great potential. Provide evidence of pre-sales, projects in progress or investors who have bought into your project. It’ll demonstrate that your business can prosper with the availability of reliable revenue. However, don’t sugarcoat the truth of your current state; explain to lenders how you manage costs and point out any areas where you can save more money. A small mistake of imposing impossible milestones can cost you the loan.
3. Establish Your Business Credit Rating
You should check your credit score before applying for a loan. Lenders check the credit rating even though you have never been in business. For example, if you have taken loans in the past, having a good credit rating shows that you can responsibly handle financial obligations. It’s also worth noting that taking out small business loans and repaying them on time can help build your business credit score. Paying bills on time also tells lenders that you are a responsible borrower.
4. Ensure You Have Viable Collateral
When applying for a loan with no revenue, you need collateral, or something valuable, that lenders can use as security if you fail to repay the loan. Depending on your financial situation, you may use certain assets, such as real estate or equipment, as a guarantee. This way, if you’re unable to repay the loan, lenders can repossess the collateral and recover some of their losses. Additionally, you can provide a personal guarantee for the loan to help you secure better terms or lower interest rates. For example, you can pledge your assets, such as bank accounts, vehicles or investments, to secure a loan.
5. Calculate What You Can Afford to Borrow
Calculate how much you need to borrow and determine how much you can pay monthly. Consider the costs of running your business and the fees associated with taking out a loan. Evaluate other expenses arising from borrowing money before proceeding with an agreement. This will help you get a loan with comfortable terms for you and your business. Most budding investors fail because of borrowing more than what they can manage. Don’t borrow too much to compete with other investors; instead, focus on efficient strategies to make a profit.
6. Negotiate With Your Lenders
Negotiation is essential when taking out a loan, particularly for startups without revenue. Find the right lender and negotiate the interest rates, payment schedules and repayment terms. It’s advisable to consult a financial expert to learn the best negotiation techniques to avoid risky agreements. This way, you can get a loan with more advantageous terms and reasonable payment amounts. However, don’t look so desperate that you accept any loan; if the terms are too harsh, walk away.
Some lenders, like American Business Credit, have professional consultants to help you negotiate better terms. The institution is a leading small-business-loan provider, supporting more than 10,000 startups. Over $100 million in funding has shaped the small business industry and helped many entrepreneurs achieve their dreams.
7. Find a Financial Partner or Angel Investor
If banks are unwilling to lend money to startups without revenue, you can look for alternative sources of financing, such as credit unions or online lenders. You could also get an angel investor on board with your venture. An angel will evaluate your business plan, including projected revenues and expenses, and decide if investing is feasible.
If they’re convinced that you have the potential to pay them back, the angel could provide a loan or even take equity in your company. Unlike financial institutions, angel investors focus on your business potential and the opportunity to make money. They analyze the market and ensure you have a well-structured risk-management strategy. Startups that leverage angel investors have access to many resources, such as a team of advisors and mentors. Therefore, you shouldn’t rely so much on common loans for your business; look for other sources of financing.
8. Research Different Types of Loans
Investors should research different types of loans and find the most suitable one for their business. For instance, short-term loans are ideal for small businesses that need quick cash flow or access to credit quickly. You can also explore long-term loans if you need investments, expansion or equipment funds. Your financial consultant can advise which loan is best for your business.
Your startup might not require much money, so getting a loan with the lowest interest rates is advisable. Also, consider unsecured loans if you don’t have collateral or assets for security. However, don’t fear taking out a massive loan because of the risks since you can pay it back in small installments over a longer period as agreed with the lender.
9. Have an Exit Plan
Creating an exit plan is essential when taking out loans without revenue. You should outline the steps to repay the loan and manage potential losses. This way, investors know what to do if your business fails and you can’t repay the loan. Having a plan for selling off assets or seeking alternative financing before taking out a loan can increase your chances of success. You should also have contingencies if things go wrong, such as reducing costs or seeking additional funding from investors. Either way, an exit plan avoids uncertainty and helps you to protect your business during difficult times.
10. Take Business Insurance
Startup business owners need to consider taking out business insurance when they take out loans without revenue. This will protect their businesses and assets in case of any unexpected losses or damages. Such calamities can affect the loan repayment procedure and the investor’s credit rating. Additionally, business insurance can reduce liability and provide financial protection when starting a new venture. You should include it in your budget and negotiate the coverage with your lender.
