There are so many reasons behind the search for a small business loan, but really the most pressing of them all is to get access to more cash so you can grow your business further. If you’re particularly low on money, it makes really good sense to apply for a small business loan for your company. So, you’re probably wondering how to get a business loan with no money; is that even possible?
All businesses need more capital. Sure, the needs of a burger bar owner are going to be different to a factory owner, but most businesses are short of cash these days, particularly when they have plans to expand, which most startups do if they have an ambitious business plan. The real catch-22 of it all lies in the fact that you have to have money before you can be eligable for a business loan to get more money.
You probably have some funds that you just don’t want to tap into to apply for the business loan. Or you just don’t have the cash flow required that a prospective lender is looking for to approve your business for the loan you need. Whichever the scenario, let’s look at how we can get a business loan when we have little or no money in the bank.
Common Reasons For Needing a Business Loan when you have no money
Before we get into exactly how to finance a business with no money, let’s take a step back: What are some common causes for a low balance in your business bank account? Figuring out exactly why your balance is so low will enable you to decide what to do next to help:
1. You’re waiting for your latest pay check.
Many businesses these days work on a contract basis, for example consultants, truck drivers and construction workers. Almost all business to business service companies are setup this way. This means that very often you are getting paid in arrears. In some cases, it can take months. But you aren’t able to just sit around before you can start your next job, as time is money. So, you start that next job because, quite simply, you have to to keep the wolf from the door. And as you wait to get paid, you’re still ihaving to pay the bills. That’s when the money in your bank account shrinks, and veru often hits zero.
2. Your business is struggling to scale due to resources.
When you first opened up your business, you probably used startup-sized resources to get things off the ground. But that tiny 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 grow and thrive. Small business loans are often used for that additional boost to the working capital available. With your business loan, you can restock to meet your customers’ growing demands on your company, you can hire more workers, you can even open up a second factory—whatever it takes to keep up with your own growth. But if you’ve wiped out your original funds, you’re going to have a hard time securing that business loan you need.
So, when drawing up your business plan, it’s important to factor in the inevitability of scaling. You work 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 not mixing 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 “NSF.” In order to avoid this, leave an extra couple thousand pounds/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 because it’ll enable you to apply for small business financing when the need arises.
There are lots of reasons why you might be suffering from cash flow problems. Part of finding the right financing without a high bank balance is understanding why you aren’t flush with reserves.
Why Lenders Are Looking at Cash Flow When You Apply for Small Business Loans
If you’ve applied for a business loan before, or at least looked into it, you likely know that small business lenders don’t often consider 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 may 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 even considering 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/$400 but you never have more than £1,000/$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.
Lenders are concerned with cash flow because they want to make sure they can get their loaned money back. Lower bank balances often reflect higher risk.
Your Top 3 Options for Financing a Business with No Money
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 still do have financing solutions available to you.
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.
Business Credit Cards
Your business’s biggest expenses, like payroll and rent, will require loan-sized funds to satisfy. But you can absolutely 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. Other than cash flow, your personal creditworthiness is 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 cardis case in point: Spending in certain categories earns you hard cash, which you can then reinvest back into your business.
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 off of 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.
Since the financed equipment provides collateral in an equipment loan, this kind of business financing is easier to secure.
Invoice financing ties back to a situation we discussed earlier: When you’re waiting to get paid for completed work, that money is as good as guaranteed. And there are lenders who can analyze those unpaid invoices and extend you the funds 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 the missing cash.
Also like 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, not only will you receive your invoice payments quickly, but businesses with limited cash flow might have an easier time qualifying for this type of loan than others.
Businesses with limited cash flow might have an easier time qualifying for invoice financing, since these lenders focus on your accounts receivable.
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 the above 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.
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 specific a savings goal, and adjust your budget accordingly. And 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.