Can You Get a Business Loan With No Money Down?

As the weather warms up, many homeowners begin to entertain the thought of adding a swimming pool to their property. And although a pool can provide a setting for endless hours of entertainment and relaxation — not to mention increase the value of a home — the cost can be quite considerable. Fortunately, homeowners have several options when it comes to swimming pool financing.

Business loans are often the perfect way to raise funds to cover a big expense, but a surprising amount of business loans actually require a deposit before you can have the money. Of course, this can seem counter-intuitive – if you had the money, you wouldn’t be borrowing.

So, what can you do if you don’t have 20% in liquid cash to give to your lender as a deposit? Often, it’s not that we don’t have the money, but it’s reserved to cover payroll and emergency expenses. Once you give it away, you’ll actually be in a worse position than you would be if you never applied for your loan.

Fortunately, there are no money-down business loans available to you to help with cash-flow problems and allow your business to grow. This article will take you through how to get a business loan with no money down and the options available to you.

How Can I Get an SBA Loan with No Money Down?

SBA loans are often the most desirable loans available for small business owners. These loans are guaranteed by the government, so they are of less risk to a lender. SBA loans offer particularly large loan amounts, but they come with a lot of requirements you must meet in order to qualify, and a long application process.

The most popular SBA loans are the SBA 7(a) and the SBA CDC/504. However, these both require money down of around 10-20% of the amount you wish to borrow.

There is, however, an option available that does not require money down, known as the SBA Microloan. This allows small business owners to borrow amounts up to $50,000 from intermediary lenders, although the average amount borrowed is around $13,000.

The downside of this type of SBA loan is that the government doesn’t guarantee it, as they do with the others. This means that the requirements vary from lender to lender.

Microloans are especially targeted toward business owners from underserved communities, females, minorities, veterans, environmentally friendly businesses, and some non-profit organizations. So, if you fall under one of these categories, you have a better chance for approval.

Bear in mind that although you will not need to put money down, you will need to provide some form of collateral to qualify for an SBA Microloan.

» MORE: SmartBiz SBA Loan Review

How Much Do You Have to Put Down on a Business Loan?

The amount of money you are required to put down on a business loan depends on several factors:

• Loan Type – some will ask for a certain percentage of the loan amount as money down
• Principal Amount – larger loans will require a larger down payment
• Term Length – the longer the terms, the larger the down payment because the borrower will have a longer period to default on their payments
• Creditworthiness – a good or great credit score will reduce the size of the down payment as it shows you can make repayments on time

How Do You Get a Business Acquisition Loan with No Money Down?

Can You Buy a Business with No Money Down?

Buying a business with no money down is a difficult feat! You often need a high loan amount to purchase a business, and lenders see this as a high-risk situation, so they typically ask for at least 10% as a down payment.

However, it is possible to get a business acquisition loan with no money down, but you must fall into one of the following circumstances.

Leveraged Buyouts

This is where you use the assets of the business you wish to purchase, alongside your own, as collateral. However, these assets have to work out as more valuable than the total amount of the loan you need. Although this is possible, this can be difficult to attain in some sectors.

Seller Financing

This is a situation where the seller of the business you wish to purchase finances 100% of the business price. As you can imagine, this rarely occurs as it is very unlikely you’d be able to convince a business owner to sell to you with no money down!

The most common circumstances in which this may be viable are:

• a business is not profitable enough for the seller to invest time and effort into running it
• a business has so many problems that the owner wants to sell it asap
• the seller has not had any other offers with a down payment
• the seller is a friend or family member who wants to help you out

What Are the Best No Money Down Small Business Loans?

As well as the SBA Microloan mentioned above, when it comes to looking for a no money down small business loan, you do have several other options available to you.

Term Loans

A term loan is the most common type of loan for small businesses, and you don’t need to put money down to secure one. Despite this, there is a chance that you will need some type of collateral as specified by the lender.

Although you will not be required to make a down payment, you may have to pay some smaller fees upfront to secure a term loan. For example, an origination fee is a small percentage of the loan that will cover processing and servicing costs.

The specific requirements of a term loan will depend on the lender you choose and your creditworthiness/financial situation.

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Business Line of Credit

A business line of credit is another method of no money down financing, most suitable for periodic expenses. Working much like a business credit card, the amount you can borrow will depend on the credentials of your business. You can then use a percentage of that money whenever you need it.

The best thing is, you only have to pay interest on the amount you actually use rather than the total credit amount, and once you’ve paid off the money you’ve spent, you can use it again and again while the line of credit is open.

There are both secured and unsecured business lines of credit. Secured will have lower interest rates, but you will need to have some type of collateral or personal guarantee.

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Invoice Financing

Invoice financing is a no-money-down, fast way to boost cash flow, if you operate as a B2B company that uses invoices to bill your customers. Invoice financing is where you sell an unpaid invoice to a lender, to get around 85% of the amount of the invoice, then fees will be charged on the remaining amount. Once the customer has paid their invoice to the lender, you will get back the 15%.

Invoice financing companies will look primarily at the reliability of your customers to determine whether you qualify for this type of financing.

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Equipment Loans

Equipment loans may or may not be no-money-down, but they may still be an option for you if you are looking for a loan simply to purchase new equipment.

An equipment loan will allow you to borrow up to 100% of the amount you need to buy the equipment, depending on the purchase price, and then the equipment itself will be used as collateral in case you are unable to repay the loan.

Compared to many other loans, equipment loans are much easier to get approved for as there is less risk to the lender. They can simply take back the equipment.

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Why Do Some Business Lenders Need Down Payments?

Generally, the lenders that require down payments for their loans are those that offer large loan amounts, like SBA loans. The more money you are allowed to borrow, the more likely it is that the loan cannot be repaid. These lenders necessitate that you have some of your own money tied up in the loan so that risk to them is decreased.

Since you would lose a lot of money if you were to default on your loan, being able to make a down payment demonstrates to lenders that you are serious about paying back your loan, and have the ability to generate good money. A lender needs this confidence that you will be able to repay the loan within the agreed terms to approve your loan application.

What’s the Difference Between Money Down and Collateral?

If you are not required to put money down, you will typically need to provide collateral to secure a loan, although some loans require both or none.

The main difference between money down and collateral is that with a down payment, you will need to give the lender that amount before you receive your loan, whereas collateral stays in your possession for good if you make your payments on time and in full.

Collateral is an asset, or assets, that the lender will requisition and liquidate if you have been unable to make your loan repayments, to get back the loan amount, or as much of it as possible. This makes it easier to qualify for a loan as the risk to the lender is reduced. Collateral can include:

• equipment
• vehicles
• personal guarantees
• inventory
• real estate
• invoices
• cash

…essentially anything that can be easily liquidated.

The collateral a lender will accept varies depending on the type of loan, the lender, their terms, and the loan amount.

Before you apply for any type of loan, you should make sure to look at all your options and carefully compare lenders to find the loan that you can afford, taking into account the interest rates and any added fees. This will help you to find the loan that best suits you and your business. When you’re ready to compare your business loan, we’ll help you find the best business loan for you and your needs.

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