3 Strategies for Getting a Large Business Loan with No Money

The old adage “You have to spend money to make money” leaves out the chapter about making money with no money…

Many entrepreneurs and business owners find themselves in a predicament where they need substantial financial backing to grow their operations but lack the upfront funding required to access capital through traditional sources. This challenge, however, can be solved with the right knowledge and strategies.

Lenders are naturally risk-averse and prefer to loan money to enterprises that show promise of repayment without default. Businesses lacking sizeable cash reserves will need to position themselves strategically, where their business credit score, potential future earnings, or collateralizable assets take the focus off their current liquidity.

Our comprehensive guide dives deep into 3 strategies businesses can leverage to get large loans with no money down. Continue reading for everything you need to know, or complete our easy application to explore your loan options alongside National Business Capital’s award-winning team.

Strategy #1: Harness the Power of Strong Business Credit

Business credit, distinct from personal credit, measures a company’s creditworthiness. It’s determined by several factors, including the business’s credit history, debt repayment timeliness, credit utilization rate, and financial health, which culminates in one number—the business’s credit score.

Stronger scores are those towards the top end of the spectrum, whereas those with challenged credit find their scores near the bottom. Single events, like making or missing a payment on your credit card, can improve or harm your credit significantly, although the effects are temporary.

Lenders, suppliers, and potential business partners use this score to gauge the risk involved in financial dealings with the company. Businesses should recognize that they may need a strong credit score at any given time and take steps to stay prepared.

Building the Strongest Credit Score

Building robust business credit doesn’t happen overnight. Still, it’s something you can achieve with diligence, strategic planning, and consistent effort. Here’s how you can strengthen your business credit:

• Pay Bills Promptly: Late payments can significantly harm your credit score. Make it a priority to pay all business obligations on time or early, depending on your cash flow. Setting up automated payment systems is a great way to avoid missed or late payments.
• Manage Credit Utilization: Keep your credit utilization in check. Generally, it’s recommended that you use less than 30% of your total available credit. High utilization can signal to creditors that your business might be struggling financially, which can negatively impact approvals.
• Establish Diverse Credit Accounts: Diversify your credit by considering various financing options such as lines of credit, term loans, and credit cards. This can help improve your credit score by demonstrating an ability to manage various types of credit responsibly.
• Monitor Your Credit Reports Regularly: Regular monitoring can help you understand how your credit score changes and let you check for inaccuracies or fraudulent activities. You can fix any errors by filing disputes with the respective credit bureaus.
• Maintain a Good Relationship With Lenders: Regular communication with your lenders can help in managing your business credit. Keep them informed about your business performance, especially if it might impact your financial situation. Staying in good standing can lead to better terms and quicker adjustments to terms when needed.

Remember – Every action you’ve taken to build your business credit score can quickly be erased by a mistake or misstep. Once you’ve built strong credit, the focus shifts to maintaining it through consistent evaluation.

How a Strong Business Credit Score Impacts Loan Approval

A high credit score reassures lenders that the business is reliable, capable of managing debt, and likely to repay the loan on time. Here are the detailed ways in which a strong business credit score can positively impact your loan approval process

• Access to Larger Loans: A high credit score increases the chances of loan approval and influences how much a lender is willing to offer in a loan amount. Businesses with high credit scores are frequently deemed low-risk, allowing lenders to approve larger loan amounts than they would for businesses with lower credit scores.
• Better Loan Terms: One of the most significant benefits of having a good business credit score is the ability to access capital with better terms. This can include lower interest rates, which lower the cost of borrowing, longer repayment periods, and more flexible payment schedules that can be tailored to the company’s cash flow patterns.
• Reduced Requirements for Collateral: While not always applicable, some lenders might require less collateral or no collateral at all if the business credit score is high. This can be particularly beneficial for service-based or digital businesses that might not have substantial physical assets to offer as collateral.
• Negotiation Power: A high credit score gives businesses more negotiating power with lenders. This could include negotiating the waiver of certain fees, such as origination or prepayment penalties, which can significantly reduce the loan’s overall cost.
• Faster Approval Processes: Lenders often expedite the approval process for businesses with high credit scores. Since a good score already denotes financial stability and reliability, lenders might spend less time on due diligence, leading to quicker access to funds.
• Opportunities for Refinancing: For businesses looking to refinance existing debts, a strong credit score can facilitate access to new loans with better terms. This can be critical for reducing financial strain by consolidating debts or lowering interest rates.
• Enhanced Credibility with Suppliers: Although indirectly related to loan approval, a strong business credit score can improve a company’s standing with suppliers and vendors. Companies might get more favorable credit terms, such as net 60 or net 90 days on invoices, which can help manage operational cash flows better.

Think of it this way: From your application to your business plan, you’re trying to show lenders that your business carries as little risk as possible. A low credit score jumps off the page as a red flag, whereas a higher score indicates a responsible borrower with fewer question marks, which makes them more likely to move forward.

Strategy #2: Leverage Business Assets and Future Earnings for Loan Approval

If there’s a lack of upfront capital, a business can leverage its assets and anticipated earnings to qualify for financing. These items highlight a business’s value beyond its current cash flow, which gives lenders the full story.

Unlocking the Value of Business Assets Through ABL

Asset-based lending is a type of financing where loans are provided based on the value of assets on the company’s balance sheet. These assets serve as collateral for the loan, which reduces the risk to lenders and may allow businesses to access larger amounts of capital.

This type of lending is particularly useful for businesses that might not have a strong cash position but possess valuable physical assets. However, collateralizing an asset comes with a degree of risk. If a business falls behind on payments or defaults, the lender can seize the collateralized asset to recoup its lost cost.

• Types of Collateral: Common assets used as collateral include real estate, inventory, equipment, and accounts receivable. The loan amount typically depends on a percentage of the appraised value of these assets.
• Assessment and Appraisal Process: To initiate an asset-based loan, a business must undergo a thorough assessment, which includes the appraisal of the assets to determine their current market value. Professional appraisers or valuation experts usually conduct these evaluations, and the findings significantly influence the lending decision.
• Understanding the Loan-to-Value Ratio: Lenders typically lend a percentage of the asset’s appraised liquidation value, known as the loan-to-value ratio. For instance, real estate might secure up to 70% of its value, whereas inventory might only secure 50%. This ratio is crucial as it determines the amount of money a business can borrow against its assets.
• Advantages: The primary advantage is the ability to turn assets into accessible capital. Offering collateral can also improve flexibility and make the loan easier to qualify for, which can be particularly useful for businesses that are rich in assets but low on cash.

Capitalizing on Potential Revenue with Forecasting

For businesses with few tangible assets but strong growth potential, future earnings agreements can open the door to business funding. This financing structure involves promising a portion of a business’s future revenue to a lender in exchange for upfront funding.

• Revenue-Based Financing (RBF): Revenue-based financing provides a lump sum of capital to a business that’s repaid based on a percentage of its future sales. Repayments adjust to the business’s revenue, which alleviates the financial burden of their repayment during slower sales cycles. For instance, a business’s repayment might be set at 5-10% of monthly revenues, meaning payments increase with higher sales and decrease during down periods.
• Structuring the Agreement: When negotiating terms for a future earnings agreement, it’s important to make sure they are sustainable and in line with realistic revenue projections. Businesses need to provide detailed, transparent financial forecasts that justify their growth expectations. These projections should be based on solid data such as market trends, existing contracts, or proven sales pipelines rather than optimistic guesses.
• Advantages of RBF: The primary benefit of revenue-based financing is its flexibility; repayments are directly tied to how well the business performs This lowers the risk of entering new markets or growing your business, and it may be easier to handle than fixed-rate loans. Additionally, since RBF does not dilute equity, business owners retain full control over their company.
• Suitable Candidates for Revenue-Based Financing: This type of financing is best suited for businesses with high margins and strong sales growth projections, like technology startups, seasonal businesses, or companies about to launch new products. It’s also a viable option for companies that lack significant physical assets but have reliable revenue streams.

Businesses considering future earnings agreements should ensure they have a clear and viable plan for revenue growth, as their ability to fulfill repayment obligations directly depends on their future financial performance.

Strategy #3: Explore Government Grants and SBA Loans

Government grants and Small Business Administration (SBA) loans are designed to support the growth and stability of small businesses, offering a lifeline to those without access to traditional financing methods.

Government Grants: Free Funding for Your Business

Government grants are essentially free money – funds that businesses do not have to repay. They’re awarded based on certain factors, like the business type, size, or the type of project the business plans to undertake.

Keep in mind, though, that many grants are awarded to one – or a few – businesses out of the thousands that apply. Strict eligibility criteria restrict the pool of applicants to only the most relevant, but even then, businesses are still competing for the crown.

• Types of Grants: Federal grants are generally the most substantial and can cover a range of purposes, from scientific research and technological innovation to environmental conservation and cultural projects. State and local grants tend to focus on economic development within specific areas, helping businesses to start up, expand, or even recover from economic downturns.
• Eligibility Criteria: Each grant has specific requirements, such as the size of the business, its location, its industry, and the reason for the funding. For example, some grants are only given to businesses in rural areas, to businesses owned by minorities or women, or to businesses in certain fields, like healthcare or education.
• Application Process: The grant application process can be intricate and demanding. It often requires a detailed proposal outlining the project, expected outcomes, and a thorough budget. Tracking deadlines and required documentation is necessary to stay in the loop with the grant’s processing timeline.
• Finding the Right Grant: Businesses should regularly check official government websites, such as Grants.gov in the United States, which lists all federal grant opportunities. State and local government websites, along with industry-specific publications, can offer valuable information regarding grants that are specifically designed for various types of businesses or sectors.

Government grants, while not universally applicable or accessible to every business, provide a unique form of financial support that can help qualified businesses access expansion capital without the financial strain typically associated with loans.

SBA Loans: Tailored for Small Business Needs

SBA loans are government-backed loans that provide financing to small businesses that might not qualify for a traditional bank loan. With favorable terms and lower interest rates, SBA loans are an excellent tool for businesses looking to grow.

• Types of SBA Loans: The SBA offers several types of loans, including 7(a) loans, which are the most common and can be used for most business purposes, and 504 loans, which are specifically for purchasing real estate and equipment. They also provide microloans, which are lesser borrowing products designed for smaller businesses, capped at $50,000.
• Favorable Terms and Conditions: SBA loans are known for their favorable terms, such as lower down payments, flexible overhead requirements, and no collateral for smaller loans. These terms make it easier for small businesses to access funding without the heavy financial burden that often comes with traditional loans.
• Eligibility Requirements: SBA loans require businesses to operate for profit, be situated in the United States, have reasonable invested equity, have used alternative financial resources (including personal assets) before seeking financial assistance, and demonstrate a definitive need for funding. The business must qualify as “small” according to SBA standards, which vary by industry.
• Application Tips: To apply for an SBA loan, businesses need to prepare comprehensive documentation, including financial statements, personal financial details of the owners, and a solid business plan. Working with an SBA-approved lender can simplify the process, as they are familiar with guidelines and can help ensure your application is complete before submission.

SBA loans provide an invaluable resource for small businesses that need funding to grow, innovate, or simply keep their operations running smoothly. Still, strict eligibility requirements and slow processing speeds may not work for every business.

Find the Right Option with National Business Capital

Each strategy we’ve discussed offers unique advantages that can align with different business needs and circumstances:

• Harnessing the Power of Strong Business Credit: Building and maintaining robust business credit can vastly improve your chances of securing favorable loan terms. This approach demonstrates to lenders that your business is credible and trustworthy.
• Leveraging Business Assets and Future Earnings: Utilizing asset-based lending and future earnings agreements allows businesses to capitalize on existing and anticipated resources. These methods can provide substantial funding based on the strength of your assets and projected revenue, rather than upfront capital.
• Exploring Government Grants and SBA Loans: Government-backed grants and loans offer viable paths to funding with supportive terms, especially for small businesses that meet specific criteria. These options can alleviate the typical stress associated with obtaining business loans from traditional financial institutions.

As businesses explore these financing avenues, it is absolutely vital to select the ideal partner for this journey. Those seeking the easiest, most convenient way to explore the options available to them should consider National Business Capital and its award-winning team.

Applying with us allows you to streamline the process of approaching multiple lenders. Instead, you have the opportunity to apply once and receive multiple competitive offers, giving you the ability to compare and select the most favorable terms for your business requirements. Our dedicated Business Finance Advisors work closely with you throughout the process, ensuring that you get personalized service tailored to your timeline and financial circumstances.

We are committed to helping you succeed by providing access to the resources you need, when you need them. Whether you’re planning ahead or in need of immediate funding, our National Business Capital is here to support your goals.

We’re your Debt Advisory Group. Complete our easy application today to unlock the offers your business qualifies for.