Why Traditional Bank Loans Don’t Always Work
The most obvious way to get a business loan is to go through a traditional bank. However, this option is usually only available to businesses that have been operational for at least six months. According to Lendio, many banks also require a minimum revenue of $50k and, to get a favorable interest rate, a credit score of at least 650. In addition to all of this, banks usually will need you to provide personal collateral in order to secure the loan.
If your startup doesn't meet these criteria, don't worry – there are still other ways to get business loans with no revenue.
Alternative Business Loans
There are a number of alternative lenders who will work with startup businesses, even if they don't have any revenue. These lenders include equipment financing companies, hard or private money lenders, and invoice financing firms.
Equipment Financing
Equipment financing can be a great option for startups that need to purchase new equipment in order to get their business off the ground. This type of loan is available to businesses of all sizes and can be used for a variety of purposes, such as purchasing new equipment, expanding operations, or meeting inventory needs.
Equipment financing also does not usually require your startup to have any revenue – in fact, many lenders won't even ask for your business's financial statements. All you need is a good credit score and a strong business plan.
Invoice Financing
Invoice financing can be another great option for startup businesses that have yet to make any revenue. This type of loan allows your startup to use its outstanding invoices as collateral in order to secure funding.
This can be a great option for businesses that are waiting to get paid by their customers. By using invoice financing, you can get access to the money you need in order to cover your startup costs without having to wait. Oftentimes, this kind of financing wouldn't make sense for small businesses who aren't operating on an invoice basis so other routes of funding are most likely your best option.
Seeking Capital from Friends, Family, and Customers
If you'd prefer a more personable approach to getting the capital you need to start and grow your business while securing more favorable terms than traditional loans, your network is the best place to start! There are a number of ways to get startup funding from friends, family, and potential customers with the most popular methods including traditional donation-based crowdfunding on platforms like Kickstarter and GoFundMe, as well as regulation crowdfunding on platforms like Mainvest and Republic.
Donation-Based Crowdfunding
Donation-Based crowdfunding allows startup businesses to raise money from friends, family, and fans by offering them rewards in exchange for their contributions. This is a great option for businesses that have a product or service to offer potential backers and can be a great way to get your startup off the ground.
One downside of donation-based crowdfunding is that, if you are a small business without a product to offer, asking for funding from your friends and family with no real reward can be a daunting task. Oftentimes, this requires extensive effort on your end to reach your funding goal.
Regulation Crowdfunding
On the contrary to donation-based crowdfunding, regulation crowdfunding enables anyone to invest in your business on terms that work for both you and your supporters. Regulation crowdfunding is a newer form of startup funding that allows businesses to offer securities (such as equity or debt) in exchange for investment. This type of crowdfunding is regulated by the SEC and offers startup businesses with no revenue some great benefits. These include the ability to raise up to $5M per year, no requirement for collateral, no minimum credit score, assistance in marketing your investment campaign, and more.
In order to conduct a regulation crowdfunding campaign, you'll need to utilize a regulated funding portal or broker-dealer such as Mainvest or Republic in order to make your offering public. While Republic works on mostly an equity basis, Mainvest focuses on debt-based capital as a share of revenue (once you are making revenue). This way, you get all the access to the capital you need while your business grows without giving up ownership or having to make repayments if your business hasn't opened yet.
Securing Startup Business Loans with No Revenue
There are a number of great ways to get startup business loans even if your business has yet to make revenue. By utilizing one (or more) of the methods discussed in this article, you can obtain the capital you need to grow your business and eventually achieve profitability. To get started, grab one of these budgeting spreadsheets to start planning your next business venture.
What can Mainvest do for your business?
Mainvest allows you to raise capital from your community, without giving up any ownership or control in the process. By running a Mainvest campaign, you can engage the community and get buy-in from local stakeholders. If you are ready to take the next step as an entrepreneur, reach out to us here.