How to Start a Business Without a Loan

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When people are looking to start a business, it usually means they’re trying to find a viable path towards financial independence.

And when it comes to financing this business, considering the sources of capital for funding your startup is as essential as the capital itself.

Here are eight different ways you can start a business without having to secure a loan.

1. Crowdfunding

Crowdfunding is a great way to raise capital when your business concept involves something people can buy, like a smartphone app or physical product.

Websites such as Indiegogo and Kickstarter are ideal platforms for generating business capital.

Many ideas have been turned into thriving businesses this way, with some companies having raised over $1 million through crowdfunding campaigns.

Avoiding debt capital as you start your business will give your company that much more of a fighting chance to become successful. You’ll be able to smoothen your business processes and place emphasize on the right priorities as the company grows.

Later on, you will be able to make expansion plans and build upon the created foundation. 

2. Get a Day Job

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It’s wise to have a day job and begin your business on a part-time basis while you work to raise capital for your new company.

This is an excellent way to test your business idea prior to needing it to generate sales in order to support itself.

Numerous entrepreneurs pick this route before creating an online company and primarily use their day job to kickstart their business.

Following this approach could take you awhile to build up your business and will likely require you to multitask between numerous priorities. However, you’ll ultimately be the sole proprietor of the company and will have created a great foundation right from the start.

 3. Get an Investor 

If you require funds for equipment or inventory, finding an investor who believes in your idea and is willing to be a shareholder can be a real coup.

This will offer you the additional funds you require without getting a loan.

You can go informal and ask family and friends to be investors, or go formal and find an angel investor via local professional networks or sites like Gust. You will of course need to be willing to work with a partner, but having a moneyed partner also offers significant strategic benefits.

4. Bootstrap Your Business

This is the process of streamlining your costs while minimizing your expenses in order to grow your company over the long run. It’s not only about reducing costs, but incurring expenses in the right areas while keeping your bottom line in mind.

An example of bootstrapping is outsourcing small projects to online contractors through paid gig sites like Upwork and Fiverr as opposed to employing regular staff. 

You can also consider buying a course to improve your communications skills as opposed to hiring professional copywriters. 

Other instances include downsizing your home, selling your car, or using your life insurance policy’s cash value.

If you’re serious about avoiding loans, you’ll need to be even more serious about locating and securing capital. 

5. Winning a Competition

If you happen to be great at pitching, why not enter a startup contest? If you win such a contest, you’ll have the funds you need.

Entering a competition will also enable you to test your business skills and possibly get some free media coverage.

6. Grants

Numerous grant programs are usually available at the local, state, and federal levels. However, most of these grants are offered to non-profit organizations, not business startups.

There are usually grants available to female entrepreneurs who want to start a business. If you’re a woman, you can visit the closest Women’s Business Center to inquire about getting a grant.

7. Rent Your Home

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If you have the space you could rent out rooms in your home to help raise funds for your business.

It’s far less risky than using your house as collateral for a business loan.

Rental income may not be enough to fully match your funding requirements, but will create a steady cash flow you can use to cover some of your business expenses.

You can post your home as a vacation rental on sites like Airbnb.

 8. Product Presales 

Startups often attempt selling their products and services on a pre-sale basis. If you have a great product, you should be able to do fairly good pre-sale business.

You can also offer potential customers discounts when they buy your product or service pre-sale. As an example, you could offer clients a specific service at a discounted price for a particular number of years when they purchase it on a pre-sale basis.

When Is It Best to Get a Loan for Starting a Business?

1. Building Credit

If you are planning to secure a large loan for a massive expansion in a few years, it’s best to start out with a small loan.

Your business will face difficulties acquiring a substantially sized loan if it doesn’t have a strong credit history.

Securing a small loan and consistently making payments on time will build the credit of your business for the future.

Further, you’ll create a relationship with a particular lender that could prove to be essential when you return to apply for the big loan. 

2. Business Opportunity Outweighs Potential Debt

Sometimes you are presented with business opportunities that are just too great to pass up. You might have an opportunity to order stock in bulk at a discount, to buy a lot of inventory to meet immediate massive sale orders, and more. 

In such cases, you need to determine the return on investment of the opportunity by weighing the loan cost against the opportunity’s revenue.

If the profit from the opportunity outweighs the debt, take the loan. Take care not to be over-enthusiastic and underestimate the true costs of the endeavor or likewise overestimate the potential profits. 

Furthermore, if you already sitting on something of value or have money coming to you in the near future, you can put this up as collateral towards asset based lending. This will provide you with an upfront sum that is guaranteed, through your collateral to be paid back in the future.

Conclusion 

Even though you’re looking to avoid the cost of debt in your new business, it’s still smart to consider the benefits that can could come from a loan.

If you’re looking to borrow a large sum in the future or need to meet a lot of pending sale orders, securing a small, affordable business loan can make a lot of sense.

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