Can I Get A Business Loan With No Money Down?

Has your source of income been impacted by the coronavirus or other financial challenges? You may be reading this because you have lost your job or simply want to add another source of income by setting  up a business. And you are wondering how to get a loan to start a business. Can you obtain a business loan with no money down?

Quick answer: yes, you can. In this article, let us walk you through what you need to know in getting a small business loan.

How To Get A Business Loan With No Money To Put Down

Do you think paying a down payment is counterintuitive? Why do you need to give out-of-pocket money when you actually need that money for your business?

Lenders often require borrowers to pay a down payment upfront before you get the principal amount you borrowed. It’s one way for them to lessen the risk of lending you money and to recoup a portion of their investment in case of a default. Being ready to shell out a down payment also shows you’re serious about the loan and that you’ll pay it back, as well as set the bar a little higher to disqualify potential defaulters.

Likewise, a down payment is also beneficial to you. The amount you shell out will be deducted from the principal loan, which means you’ll pay lower monthly amortization and interests.

But wait—what if you can’t afford a down payment at all? Can you also get a small business loan without collateral? Well, you have options. Let’s talk about that.

1. Term Loans

A term loan is the most common long-term business loan that allows you to borrow millions and pay for it up to 30 years. If you have a good credit record and the lenders deem you qualify based on other criteria, such as personal guarantee, number of years in business, and revenue health, you don’t need to pay a hefty down payment.

Term loans don’t usually have down payments but require collateral. If you will use the loan to purchase a commercial property, though, that property can serve as the collateral. If you default on your loan, the lender will seize the property and sell it to recoup their money.

Other collaterals you can pledge are your house, car, business inventory, and cash savings. However, there’s a huge risk in that—when your business fails, you will also lose your personal properties and you may end up homeless.

Business term loans start at 7 percent up to 24 percent on average. Here’s a calculator to compute how much interest you’ll have to pay for the amount of loan you get.

2. Equipment Financing

It’s one of the easiest loans to obtain. If you’re applying for a loan to buy equipment for your small business, lenders can approve the entire amount of the purchase. It will also serve as the collateral that the lender can take back when you default on your payments.

However, if the equipment depreciates quickly, the lender may not finance 100 percent of its value. In that case, you’ll have to shoulder the rest or come up with a 20 percent down payment.

Interest rates for equipment financing range between 8 percent and 24 percent. Use this calculator.

3. Invoice Financing

If you already have a business, with long payment cycles, this option allows you to sell your unpaid invoices to the lender. You can receive up to 85 percent of the accounts receivables, while the remaining 15 percent goes to other fees. The invoices serve as the collateral, so you don’t have to put money down.

If you’re having cash flow problems because you have to wait for your customers to settle the invoices, this financing is a good option.

Some of the best invoice financing providers are FundboxTradeshift, and BlueVine.

4. A Business Line Of Credit

When you don’t have collateral or money for a down payment, a business line of credit is a great alternative. It works pretty much like a credit card.

You’re approved for a certain amount of credit, which you can transfer to your bank account when you need cash. Then, you make monthly payments for the amount you borrowed plus the interest charges. Whenever you pay, the amount is added to your credit balance once more, which means you can spend it again in the future.

A business line of credit has an interest rate of between 6 percent to 24 percent, which applies only to the amount you spent, not the entire credit line. Here’s a calculator to help you know how much you’ll have to pay if you use your balance.

5. SBA Loans

The Small Business Administration (SBA) offers SBA 7(a) and CDC/504 loans, which allow small businesses to borrow up to $5 million. These have long repayment terms of up to 25 years. The SBA 7(a) loans have interest rates of between 6.5 percent and 8.5 percent, while the 504 loans have interest rates of 2.9 percent to 3.25 percent.

To qualify for an SBA 7(a) loan, your business must be for-profit, you have a good credit record, you have a good character and business management competence based on cash flows, and you have the ability to pay. A 504 loan has the same qualifications, plus a net worth of $15 million and an average net income of $5 million.

These loans have 90 percent government guarantee, which means that SBA will buy the loan from the private lender when the borrower defaults.

If you don’t qualify for these two popular options, another option is the SBA Microloan. It’s ideal for startups and small businesses, and you can borrow up to $50,000 with no money down.

6. Unsecured Loan

If you need more than $50,000, you can opt for unsecured loans and borrow up to $100,000. Merchant cash advances, working capital loans, and business line of credit are examples of unsecured loans. However, lenders will ask you to sign a personal guarantee, which means that when your business fails, you are personally liable to pay your loan.

Interest rates of this type of loan varies from 9 percent to a whopping 250 percent. Check out this calculator for merchant cash advances.

7. Personal Loan

If you can’t secure a business loan, you may have an easier time getting a personal loan. You can use this loan for any purposes, and you don’t need a collateral and down payment. However, it usually has higher interest rates, so you need to be diligent with your payments.

Personal loans’ interest rates range from 6 to 36 percent. Use this calculator to determine your monthly payments.

8. Angel Investors

If your business has huge potential, you can seek the help of angel investors. They are high-net-worth individuals who are willing to invest in startups with no collateral but will often ask for a share in your company. You may also consider borrowing money from family or friends, who are likely not to ask any interest.

The Pitfalls To Watch Out For With No-Down Business Loans

Getting loans with no money down or collateral can be advantageous at the beginning, but they do have downsides. Here are some of them:

  • High interest. No-down and no-collateral loans often have high-interest rates as lenders want to reduce their risks.
  • Security. You might be putting your personal properties at risk when lenders ask you to provide some sort of guarantee.
  • No equity. Small business loans don’t provide you equity, so once you’ve paid what you owe, you can only get more money when you apply for another loan.
  • Tight restrictions. Some lenders may give you restrictions, such as keeping your debt-to-equity ratio at a certain level. When that ratio becomes too high because your business is not doing well, they may demand you to pay all or part of your debt immediately.
  • Difficult to obtain and qualify. Many lenders only approve loan applications for businesses that are already established. If you get approved, it’s usually below the amount that you need for your business. Others may require you to provide a personal guarantee, including your properties that they can take away when you default.
  • Additional fees. Small business loans have extra fees, which include application processing, origination, underwriting, prepayment, guarantee, bounce, late payment, check processing, credit check, and collection fees.

Other Options: Government Programs For Entrepreneurs

Aside from seeking funding from traditional lenders, you can check government assistance for entrepreneurs. Some organizations and programs that can help you are the following:

You can also check, which is a comprehensive database of federal grants available for businesses.

How To Apply For These Grants?

  • Check the criteria carefully to ensure that you are qualified.
  • Call the grant administration who will let you know if you’re eligible/qualified for the grant.
  • Apply as soon as you can because grants are often first-come, first-serve basis. It’s best if your business idea is in line with the organization’s goals and purpose.

Tips For Increasing Your Chances Of Getting Funded

Before approaching lenders, it’s best to do your due diligence to increase your chances of getting the funds you need for your business. Here are some tips:

  • Improve Your Credit Score. With no money down or collateral, lenders will have to rely on your credit records to gauge your ability to pay. So, you must improve your standing by paying as much debt as you can, keeping your credit balances low, and paying your bills on time.
  • Spend Time To Research. There are literally thousands of grants available, so you must spend sufficient time to do your research. You’ll find the best that suits your needs and ability to pay back.
  • Create A Solid Business Plan. Lay down your strategy on how you plan to operate and make money from your business. Some lenders or investors ask for a winning business plan before they grant you funding, so you must be able to demonstrate your business profitability potential. You should also determine how you are going to spend the loan or grant you will receive. Here are the calculators you can use to understand the actual cost of getting long-term loans for your business.


Jobs are hard to come by these days, so starting a business may be a good alternative. It’s possible to get funding, such as small business loans and grants, without money down or collateral. However, consider their downsides and how it’s going to impact you and your business in the long term. With due diligence, you can find the best funding option that will help your business take off.

Are you planning to start your business amid the pandemic? Have you tried applying for loans and grants? We’d love to hear your experience and tips in the comments below!

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