How To Start a Business Without a Loan

In the past few years, it has become increasingly difficult to secure a business loan from a traditional bank or the federal government. Because of this, entrepreneurs have started to explore ways to start a business without taking on any debt.

So, if you’re looking to start a business of your own, here are the top 6 ways that you can gain some working capital without relying on business loans.

1. Product Pre-Sales & Crowdfunding

If you are interested in starting a direct-to-consumer business, like an e-commerce brand, one of the best ways to avoid taking on debt is to offer product pre-sales or start crowdfunding. That way, you can track both the demand for your products and get a small amount of profit to cover your initial overhead costs.

Product pre-sales can be done directly through your business’s website and will ensure that you do not order too much stock for your launch. However, crowdfunding is usually done through a separate website, like Kickstarter or GoFundMe. This will allow you to gauge interest from your target audience and secure financing without taking on any debt. You can include small perks or benefits to your initial donors to increase brand loyalty as well.

2. Explore Government Grants for Small Businesses

While it has become a little harder to receive a small business loan in the past few years, there are still other federal funding options available for small businesses. With business grants from the federal government, you won’t have to worry about repaying the total amount.

Although, federal small business grants tend to have specific requirements you need to meet to be eligible. Additionally, the Small Business Administration generally will not provide funding to cover start-up costs. You can, however, apply for grants once your business is past the start-up phase.

3. Work From Home

One of the larger costs for a business is securing an office space, warehouse, or other brick and mortar location. Rent tends to be high and landlords are not likely to approve you without a deposit or financial statements. So, the best solution is to work from home - at least at the beginning.

Working from home allows you to lower your overhead costs significantly. And, it is fairly easy to set up a dedicated workspace in your home - especially if you are the only employee.

4. Get Quicker Access To Your Profit

If you are a company that offers a service to other businesses (like a marketing agency or graphic design business), it can be hard when you are waiting on unpaid invoices from your customers. And, sometimes, those invoices can go unpaid for anywhere between 30-90 days.

Luckily, you can take advantage of invoice factoring to get quick access to your business’s profit. This process is when a factoring company pays you out for your customer invoices within a few business days. Usually, they charge a fee between 1%-5% of the total cost of the invoice. This can help you gain access to your profit faster and allow you to quickly put a larger budget towards gaining new clients.

5. Use Your Savings

Many small business owners fund their start-up costs out of their own pockets. While this does involve more risk, it can also help you keep your budget tight. And, you can pay yourself back once your business begins to gain profit.

The biggest benefit to using your savings is that you do not have to go through an approval process to receive the funding. And, you won’t have to pay interest like you would with a small business loan or personal loan.

6. Start Part-Time

Jumping into a new business venture full-time can be scary. You are taking on a larger risk by dedicating full-time hours to your new business, leaving you little time to make income elsewhere. However, if you start out working part-time in your business, it can help negate some of the risks of starting a business.

Dedicating 10-20 hours a week to your small business can help you maintain a steady stream of income from other sources. You can always dedicate more of your time after you start to grow your business.

The Bottom Line on Starting a Business Without a Loan

There are plenty of ways that you can help negate the risk of starting a business by avoiding taking out loans in your name or your business’s. With these tips, you can dedicate time to your business without worrying about a monthly loan payment.

For more tips and tricks on starting a new business, check out our post on how you can manage your finances better through debt consolidation.