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Getting a startup loan when your business has no revenue can be more challenging than if you are already generating income, but it is possible. From startup loans and credit cards to solid business plans, let’s explore what options your new business has.

Key takeaways

Here are three important things to consider when trying to get a business loan with no money:

• Offer collateral. Instead of money, you could offer business assets as collateral to help reduce the risk the lender takes by offering you a loan

• Sell your idea. Clearly demonstrate why your business has the potential to make money in your business plan. Include as much detail as possible about the market gap you’ve identified and your business’s potential profitability

• Know your options. A loan doesn’t have to follow the traditional arrangement. Other financing options include business credit cards and invoice finance

Starting a business with limited funds

Starting your own business is a thrilling time. You develop your idea, research your audience, identify gaps in the market and create products or services you believe can make a difference. Before long, you have a fully formed business plan and you're ready to move forward.

All you need is a business loan to get your startup off the ground and start generating revenue. But it’s proving difficult, and suddenly it feels like your momentum has come to a standstill.

The first thing to remember is you’re not alone. Many small business owners struggle to find the capital needed to launch their business as planned, especially in the beginning. Fortunately, there are several ways to secure funding for a business, and understanding loans, lines of credit and credit cards can make all the difference.

Tips for getting a business loan when you have no money

If you’ve exhausted other financing options and believe some type of business loan is the right choice for you, it’s essential to present a strong case to a lender. This is especially important if your business has no revenue, as you won’t have financial statements to back your application.

Make sure you do the usual research on how to get a loan ahead of time. Understand whether you meet the lender’s criteria for eligibility and know what steps to take if your loan application is rejected.

Here are five tips for securing a business loan when your business has no revenue:

1. Provide collateral

If your business has no money, you may need to offer something else to reassure the lender. While you still need to make the monthly loan repayments, providing an asset as collateral can strengthen your loan application; this is known as a secured loan. The asset could be anything from equipment and inventory to property and furniture. The lender can take the asset if your business defaults on the loan, which mitigates its risk.

2. Build your business credit score

In the early stages, your business is unlikely to have any credit history and, therefore, no credit score. While it is possible to get a business loan with bad credit score, having none can be problematic because it is one of the first things a lender considers when reviewing a loan application. By initially exploring other funding options, like business credit cards or invoice finance, you can quickly establish a credit history, which will put you in a better position when you apply for a loan.

3. Craft a detailed business plan

A detailed business plan may be your business’s greatest asset, especially in the early days. It is crucial to know how to write a business plan to ensure it contains the right information and how to tailor your plan for a loan application. It should include cash flow projections, market research and analysis, financial projections, and an explanation of your business’s growth potential. The more detail you provide, the better. Without revenue, your business plan must answer the key questions lenders have regarding your ability to repay the loan.

4. Loan schemes and grants

You might think you need to go straight to traditional business loan providers, but there are alternatives. The government-backed Start Up Loan is a potential starting point. You can borrow up to £25,000 with a fixed rate of interest of 6%, and there are no set-up or application fees. You can also access 12 months of free business mentoring. It’s also worth looking into , which can provide funding without the need for repayment. 

5. Consider a guarantor 

Another way to mitigate the lender's risk is by adding a guarantor to the loan agreement. This person effectively signs the agreement with you and agrees to take over the loan repayments in the event you and your business can no longer do so. Finding a personal guarantee and making sure they fully understand the commitment they’re taking on is very important, but this approach could help get your application over the line.

Pros and cons of small business loans with no money

Taking on a business loan with no money has its advantages and disadvantages. It’s important to weigh the risks alongside the potential benefits when making your decision. Here are some pros and cons to consider:

Pros

• Start growing your business. A business loan can help get your idea off the ground, providing you with the funds to grow from a small idea into a great success

• Build a business credit score. By taking on a loan and making repayments in full and on time, you can quickly build a credit history for your business, making borrowing easier in the future

• Shows you mean business. Securing a business loan can demonstrate to customers, potential investors and suppliers that you’re a credible and stable business

• Use the funds for what you need. Unlike with other types of finance, business loans give you the control to spend the money where you need it most, whether that’s opening up cash flow, investing in marketing, settling invoices or paying wages

Cons

• Debt risks. Taking on finance before you have the cash to confidently repay is risky and can lead to debts if you’re not careful. Only borrow what you know you can afford to repay

• More outgoings. Loan repayments can accumulate and eat into already tight cash flow, which can be especially challenging if income isn’t yet stable

• Higher interest rates. Business loans, especially startup loans, typically have higher interest rates, making them a more expensive way to borrow

• Additional requirements. Because you have no revenue, lenders may insist on you putting up an asset or providing a personal guarantee. While this can help get the loan approved, it comes with its own personal risks

Should you take out a business loan with no money?

Deciding whether you should take out a business loan with no money is an important decision and one that you should consider carefully. Every business is different, and only you can know whether the risk is one you can take on or not. To help you in your decision, here’s a checklist of things to consider before taking the plunge:

• Can it wait? If you don’t need the money right now and can continue trading without it, consider delaying a business loan until you’re confident that the lack of funds is hindering your business

• Can you afford it? Ensure you fully understand how much you’ll need to repay each month. Many loan providers offer repayment calculators to help you estimate what might be due, including interest. This is useful for planning the management of business loan repayments. If there’s a chance you might fall behind, think twice before applying

• Are you ready to grow? If you’re trading comfortably with reasonably stable cash flow and a cash injection is just what you need to take your business to the next level, then maybe the time is right

Alternative financing options for businesses with no money

You might think a business loan is the first thing you need to start a business

It's easy to see why. Startup loans, for example, are specifically designed for brand-new businesses and are advertised as such, but they aren’t the only way to finance your business. Especially in the early days, there are other ways to get funding without a loan that might help build your credit score more quickly, making it a bit easier to get approved for a loan later.

Here are a few alternatives to getting a business loan when you have no money:

Business credit card

A business credit card works much like a personal one. You are given a credit limit that can be spent, with a required repayment each month – either the minimum amount or the full balance. Business credit cards can be an effective way to build your business’ credit profile in its early stages. If you regularly borrow and repay in full, you demonstrate financial responsibility, which can help with future loan applications.

Asset finance

If your business is being held back by the need to purchase equipment, asset finance may be worth considering. This type of financing is similar to a loan, but the funds must be used to acquire or lease assets like equipment, vehicles, or machinery. You repay through instalments, and often the asset itself serves as collateral for the lender, reducing their risk since they can reclaim the asset if your business defaults on the finance.

Invoice finance

In the early stages of business, cash flow can be unpredictable, especially if clients or customers settle invoices late, preventing you from accessing the funds needed to grow in a consistent way. Invoice finance can help by allowing a lender to advance payment for unsettled invoices, usually up to a certain percentage. When your customer pays the invoice, the lender takes their share and gives you the remainder, helping to keep cash flowing and avoiding long delays.

Overdrafts

A business overdraft is typically linked to a business bank account. It allows you to access a set limit when your account goes overdrawn. While useful for short-term cash flow issues, overdrafts can be expensive, making them less suitable for long-term or frequent borrowing.

Line of credit

A line of credit is similar to a loan but has the features of a credit card. It allows your business to borrow a set amount, but you only pay interest on the portion you use. It can be secured or unsecured and may have a fixed term or be available on an ongoing basis.