How to Fund A Small Business Without a Loan

Starting any business requires two very important things.

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The two main ingredients are your good idea and capital. But, if you’re new to the business world and don’t have access to capital from a trust fund or personal savings account, you’ll likely need to look to outside sources for financial assistance.

Many people may opt for a loan to start out, but for some, a loan may not be a viable choice. In this case, knowing
how to fund a small business without a loan simply begins with some education about your funding options and best practices to minimize expenses. 

Common Challenges for New Businesses to Get a Loan

When you’re just starting a business, there are many challenges you may face for loan approval. These are some of the most common reasons why your small business loan could be declined in the early stages: 

  • Your credit score is too low
  • You don’t have enough business credit history (this is like when you’re entering the workforce and the job requirement calls for years of experience, but it’s an entry-level position.) 
  • You don’t have enough collateral 
  • Your debt utilization is too high (i..e you’re using too much of your credit line which makes you a high risk for default.) 
  • You don’t have enough cash flow (this is understandable since you’re just getting started, and that’s why you need the loan in the first place).

Best Practices for Starting a Business

Before we jump into all your funding options, let’s talk about some best practices to keep costs low when you’re just getting ramped up. 

The Bare Necessities 

Don’t go big, go home. That’s right – when you’re just getting your idea off the ground, don’t commit to expenses that aren’t necessary for the time being. 

If you can, choose to work out of your home before signing an office lease or renting a co-working space. Leverage marketing tactics like social media that can begin as free and grow into a part of a larger marketing budget. 

More Ways to Minimize Costs 

Here’s a list of ideas to help you minimize costs when you’re building your business: 

  • Hire freelancers instead of employees 
  • Try to run your business online, if possible
  • If you need an office space, rent a ready-to-use space 
  • If you’re working from home, hire meeting rooms on daily basis when needed 

No Loan? No Problem - Funding Alternatives

If you’re at the point where you’ve kept costs low and even reinvested your profit, but you are still in need of fast funding, then, congratulations! You’re one step closer to achieving your dream. 

If your small business loan has been declined, don’t worry. 2020 is an especially precarious time for small businesses to obtain loans. On the bright side, there are many small business funding options to choose from, including: 

  • Family lending: You’ve probably thought of this and may have even been hesitant to take this route. If you have family members who would be willing to help get your idea off the ground, it’s a good alternative to bank loans (for some obvious reasons). Some family members will give you the money as a gift, but you can also promise back interest or equity. Whatever agreement you come to, it’s best to get this in writing with signatures so it’s legally binding. 
  • Equity: Equity is the sale of a stake in your business. You can give equity to an individual, group of investors, crowdsourcing platforms or private equity houses. At the start, the most common type of investor may be an angel investor, granting you with your first influx of cash. In your future rounds of funding, it’s common for venture capitalists to join the party. When your business is in good standing and perhaps ready to go public or make an exit, then private equity firms may make their appearance. 
  • Crowdfunding: There are crowdfunding platforms that can help you greatly widen your market. Crowdfunding is the process of sourcing money from a group of people. There are several well-known platforms in existence. Here are some popular websites for this service: Kickstarter (project funding), Fundable (business funding), Indiegogo (product funding). 
  • Asset Financing: You have the option to borrow against assets you’ll need for your business. For example, you can borrow against equipment you’ll need to purchase or even stock. 
  • Merchant Cash Advance: A merchant cash advance allows you to borrow against a portion of your future credit card sales. One of the most desirable aspects of a merchant cash advance is that the amount you pay back can be based on your monthly sales. So, if you have a slow month, you won’t be disproportionately affected. Check out our programs to help find what works for your business needs. 
  • Invoice Financing: If your business has been running and you are owed outstanding invoice payments, then you can borrow against them. While you wait to collect on account receivables, you can get fast cash by selling the invoices to an auction platform or directly to a provider. The goal is that when your customer pays their invoice, you will easily be able to pay back the advance. 

Remember that no matter what kind of funding you receive, no money is completely free. You should evaluate your risks, especially of not being able to pay back the amount you have borrowed. It’s also important to understand the interest rates (or equity) which is your cost of borrowing from any of these sources.

Don’t Give Up!

Lack of funding tends to be one of the most common reasons why new businesses fail. With the various amounts of funding methods available to you, it would undoubtedly be a shame to give up for this reason. 


To choose the right funding method for you, start by evaluating your needs and assessing the amount of funding you’re seeking. Be sure to consider timelines and any promises you’ve made to customers. Then, apply for the funding method that makes the most sense for your business model. 


No matter what you do, do not give up! Your business has the potential to change the world.

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