Running a small business may be expensive, but the old adage is true: It can take money to make money. That’s where outside funding comes in. An infusion of capital from a business loan may help stabilize your business and move it forward.
Many loans have minimum revenue requirements, but if you don’t have revenue, are you out of luck? Not necessarily. Qualifying for certain business loans with no revenue may be possible, and pursuing these loans is often smarter than bankrolling the entire venture yourself. Below are some tips to help you secure funding if your business isn’t currently generating revenue.
When should you consider a loan if you have no revenue?
Taking out a business loan with no revenue can be risky. However, seeking out business loans may be your best bet if:
- You're waiting to get paid. Cash flow problems aren’t uncommon when it comes to invoice-based work. You might have to wait weeks or even months to get paid when the job is finished. Most small business owners don’t have the luxury to wait that long. If this sounds like you, a business loan to help keep the lights on might be wise.
- Your business is struggling to scale. If your company has lots of new business coming in, it will typically need to scale with the demand. A business’s resources are sometimes insufficient to keep up with a growing customer base. Applying for a loan may help you hire employees and purchase equipment.
- You've mixed personal and business finances. Combining your personal and business finances makes you more vulnerable to financial hardship if your business starts to struggle. Separating them gives you a buffer that can help you face economic troubles and give you more opportunities to bounce back. Getting a loan can help you start a business fund separate from your personal account.
7 options for a business loan with no revenue
There are several loan options for potential borrowers without revenue, but you should be careful as you compare them. Often, the repayment clock will kick off shortly after the money reaches your bank account. Lacking a reliable source of income typically means that you might struggle to repay the loan. But when the benefits of the funding outweigh the risks, you may want to consider the loan options below.
1. Traditional bank loan
A traditional bank term loan is generally a great option given its reasonable interest rates and long repayment terms. That said, applying for one may be slightly challenging – even for business owners with plenty of revenue – given their qualification criteria.
Generally, you’ll need a credit score of 650 and $50,000 in annual revenue before you’re eligible for bank term loans. However, it’s likely not impossible to get a loan if you fall short of that criteria. Sometimes, offering to put up collateral may be able to help make up the difference.
2. Equipment financing
As the name suggests, equipment financing is a way to fund the purchase of new machinery or the repair of old equipment. These loans are typically easier to qualify for than many other small business loans because the equipment itself serves as collateral. That reduces the lender’s risk, generally enabling them to qualify more borrowers, potentially including no-revenue businesses. If you’re eligible for this type of loan, your funds will typically cover 80% to 100% of your equipment expense.
3. Business lines of credit
A business line of credit is a revolving loan, similar to a credit card, and it is not an installment loan. That generally means you get a lump sum of capital to draw from at your own pace. In other words, you can typically use up to a maximum amount and only pay for what you use. Once you repay your outstanding account balance, all that money typically becomes available again.
Credit lines generally come with limits of up to $100,000 for unsecured plans. They typically also have minimum annual revenue requirements of at least $50,000. However, there may be options for lines secured solely with collateral to give no-revenue borrowers a chance to qualify.
4. Business credit cards
A business credit card is essentially a business line of credit with a physical, tangible form. Unlike some credit lines, though, business credit cards lack a date after which you can’t use them anymore. Additionally, the application process often doesn’t require business documentation to prove your monthly or annual revenue, making qualification easier. That said, in most cases, business lenders require a minimum credit score of at least 670 to qualify for their credit cards.
5. Invoice financing and factoring
You may have no revenue right now, but with abundant outstanding invoices, you could likely qualify for invoice financing or factoring. Your outstanding client invoices – which will form your future revenue – will typically be the basis of your loan.
Invoice financing is when a lender advances you around 80% of your outstanding invoices. You’ll generally get the remaining 20% once the client repays their invoice, minus the lender’s fee.
On the other hand, invoice factoring isn’t exactly a loan. Instead, you’ll sell your unpaid invoices at a discounted rate to a factoring company. This company will then take over your collections process and keep the money from your invoices.
Companies that offer either option are generally more concerned with the value of the invoices than with your company's financial health. As a result, they’re typically both nice options if your business lacks revenue.
6. Friends and family funding
If you’re not in a position to apply for a more traditional loan, friends and family may be a great initial funding source. Of course, everyone’s circumstance is different – not everyone’s friends and family have the money to lend. But even a little bit of money can generally help your business. Be cautious, though – using a loved one's money for your business may easily strain the relationship if you end up unable to repay them.
7. Crowdfunding
You can typically use several online platforms to raise money from the public in exchange for several tiers of rewards they can earn. This approach, though, can be less reliable than other financing methods. You’ll have to set a monetary goal and reach it before seeing any of the money. Of course, there is no guarantee that you will reach that goal. But if you do, crowdfunding will likely be less expensive than taking out a loan because there are fewer fees. That said, the right loan for your business doesn’t generally have to be very expensive.
Find business loans with no revenue via SmartBiz®
You generally have several viable loan options if your business has no revenue. SmartBiz can help connect you with lenders that offer these loans. You can use SmartBiz to help you find bank term loans and custom financing options such as business lines of credit, business credit cards, and invoice financing. Check now whether you pre-qualify* for funding that can help get your business off the ground – and keep it thriving.Frequently asked questions about getting a business loan with no revenue
1. What is the easiest business loan to get?
The easiest business loans to get include online loans, merchant cash advances, microloans, and invoice factoring. The SBA microloan is an excellent option for business owners who need some working capital. While it may not be as easy as some of the other options, the requirements are minimal. The SBA microloan limit is $50,000, which makes it a great option for business owners who need some working capital but don’t want to borrow millions of dollars.
2. How much deposit is required for a business loan?
The deposit required for a business loan is typically somewhere between 10% and 30% of the face amount. There are several variables to consider, including the type of loan you’re applying for, the lender, and your financial situation. For example, government-backed business loans, such as the SBA 7(a) loan, typically require a deposit of between 10% and 20%.
3. How hard is it to get a business loan?
Getting a small business loan does not have to be hard. However, there are some requirements that you will be required to meet. For instance, if you want to get the SBA 7(a) loan, you will need to provide a detailed plan of how the funds will be used, financial records that show that you can take on more debt, and show that you have a history of paying your debts. Additionally, the funds that you’re borrowing must be for an approved purpose, and you cannot exceed the program limitations.
4. Can I use my EIN to get a loan?
Yes, you can use your EIN to apply for and receive a loan. In fact, you can use your EIN when applying for an SBA loan, including the SBA 7(a) loan.
5. Can you get a business loan with just a business plan?
No, you generally cannot get a loan with just a business plan. While most lenders require a business plan to approve your loan application, they want to see other documentation as well. Generally, you will need to prove through pro forma financial statements that your business can take on additional debt and show that it has a proven repayment history.
