Commercial Lending
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Discover effective strategies to get a loan with no money down for your startup or small business with limited financial resources.
It's only natural for businesses to turn to commercial loans whenever they need a cash injection. Such loans help business ventures fund various business-related expenses, from managing cash flow to expanding operations and acquiring equipment.
Unfortunately, most conventional lenders make a down payment a hard requirement when applying for a commercial loan. Banks require 20% to 30% down when taking out a loan because it helps lower their risk exposure.
But what do you do if you're strapped for cash and can't qualify for a conventional loan that requires money down? If you're a startup with no revenue or a small business with no money, dig in as we detail how to get a commercial loan with no money down.
5 Business Loans That Require No Money Down
You're still spoiled for choice when you need a capital injection for your business but can't raise a down payment. Here are some of the commercial loans you may secure with no money down:
Term Loans — Fund Any Business Project
Term loans are small business funding options with a long repayment period. With this type of loan, you can access the funds you need to grow your business without draining your cash flow. Unlike conventional loans, you can secure a business term loan with no money down. In most cases, pledging collateral or personal guarantees will suffice.
Since term loans are flexible, you may use the funds for any business purpose — from hiring new employees to purchasing equipment.
Term loans carry attractive interest rates, usually 7%, and repayment terms of 1 to 5 years. When approving a business term loan, lenders consider your time in business, credit score, annual revenue, and cash flow.
Equipment Financing — Get the Best Equipment
Equipment financing lets you purchase or lease crucial tools, equipment, machinery, or technology without draining your cash reserve. Almost 80% of the businesses in the U.S. use this credit facility to acquire anything from office furniture to construction vehicles. Your lender may cover up to 100% of the purchase price to help you acquire the new equipment with no money down. However, they may require 10 to 20% down if purchasing equipment with a high depreciation rate.
Eligibility depends on your firm's financial health, price, and equipment condition. The equipment is usually collateral, so you don't need any money down. Lenders will consider your time in business, annual revenue, and credit score when applying for a business equipment loan. The interest rates vary between lenders, and the repayment term ranges from 1 to 5 years.
Invoice Financing — Turn Unpaid Invoices into Cash
Also known as invoice factoring, invoice financing is a form of accounts receivable financing that helps you access business financing without putting any money down. Instead, you serve up the unpaid invoices as collateral to a factoring company in exchange for 70 to 90% of their value.
You may apply for invoice financing if you serve other businesses (B2B), have clear invoice repayment terms, and are invoicing for a substantial amount of money. Lenders will likely factor your invoices if they're newly issued to large companies with significant annual revenue.
Invoice financing rates range from 1% to 5%, with a one-time processing fee. With invoice factoring, lenders mostly look at your client's financial health. They will dig into the customer's payment history, conduct a business credit check, and perform a reputational analysis before approval.
Invoice factoring is ideal for companies that offer B2B services with extended payment cycles of 30, 60, or 90 days.
Business Line of Credit — Business Funding On-Demand
A business line of credit is a form of "on-demand business funding." This funding option allows you to access funds whenever needed instead of making a fresh application. The lender opens a line of credit with a fixed limit and gives you free spending reign.
Since business lines of credit are revolving — you may use the fund as often as you wish. Once you've spent the money, you only need to pay it back plus the interest within the monthly or weekly timeframe to restore your credit limit. You may borrow once again, and the cycle continues until the term limit, usually 6 to 24 months.
While some lenders may require collateral such as home equity, vehicle, inventory, and equipment, others don't. An unsecured business line of credit doesn't require collateral or money down, but it carries higher interest rates, lower credit limits, and shorter payment terms.
Most lenders look at your bank statements, annual revenue, time in business, and personal credit score when approving a business line of credit. Most lenders will consider your credit score, annual revenue, and time in business when evaluating your application.
SBA Microloans — Specialty Funding for Startups
SBA microloans are an excellent choice for business funding if you don't qualify for traditional loan options. These are specialty loans by the U.S. Small Business Administration designed to help underserved businesses such as startups and minority-owned companies.
With the SBA microloan, you can borrow up to $50,000 and use the money as working capital or purchase inventory, furniture, supplies, equipment, or machinery. However, you can't use this money to repay debts or make real estate purchases.
Eligibility requirements vary between lenders, but the microloans carry an affordable interest rate of 8 to 13% and a repayment period of up to seven years.
The SBA microloan program primarily targets startups and new businesses — startups secured 25% of the microloans issued in 2023. Therefore, you can quickly secure funding with a low income, no credit history, and no money down. When approving a loan, microlenders consider many factors, such as time in business, credit score, region, and personal and business finances.
Some microlenders require borrowers to secure their loans with collateral, while others don't. Sometimes, signing an SBA loan personal guarantee committing to repay the loan will suffice. For companies, SBA requires an unconditional guarantee from everyone with 20% ownership. If you use the funds to buy new equipment, it becomes collateral for the microloan.
SBA microloans are offered through accredited lenders and feature competitive interest rates and flexible requirements, including no money down.
Why Down Payments Matter
While a loan with no money down may seem appealing, you must understand the value of a down payment in the lending process. A down payment raises your creditworthiness and chances of securing a loan.
A deposit boosts the lender's confidence in your financial capabilities. It demonstrates your business is in good financial health and you're willing to invest in your venture's success.
Lenders often consider a deposit as a form of risk mitigation — it reduces the amount of money you need to borrow. As such, they reward borrowers who provide a deposit with more favorable terms. It may lead to lower interest rates, longer repayment periods, or increased borrowing limits. Raising a deposit makes lenders more amenable to negotiating and reducing related charges such as origination and closing fees.
Additionally, putting a down payment helps reduce your loan burden. It reduces the size of your loan while helping you secure lower interest rates — effectively reducing the interest payable over the life of the loan. A deposit can also shorten the repayment period, reducing the money you pay back as interest.
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