Do you dream of starting a small business but lack the capital you believe you need to launch that dream? With a little creative thinking — plus some solid business planning — scrappy business owners with next-to-no money can open up financing possibilities.
Starting a business does require some capital. But you have a number of funding options, including credit or loans from a bank. Plus, starting a business on a shoestring can be much more feasible if the business you choose requires minimal overhead and if you can get cash flowing quickly.
Planning to Start a Business With No Money
Before you think about where to seek funding, you'll need to create a business plan to help figure out how much startup funding you'll need.
There are certain types of businesses that are relatively easy to start with little to no money. As you consider what kind of business you want to launch, it's important to know what minimum amount of funding you'll need to get started and to decide whether you'll be hiring employees right away.
As you enter the planning phase, here are three questions to ask to help determine your startup funding needs:
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What kind of business do I want to start?
Is your dream business on this list of service-based businesses you can start with less than $20?
Most of these businesses don't require expensive equipment, materials, or commercial real estate to begin. Examples include: bookkeeping, concierge services, consulting, graphic design, local tours, pet care, social media management, and freelance writing. Solo services can be attractive options because they allow you to start generating revenue almost immediately. But even if your dream business is more complicated than the ones on this list, you can still start small and grow.
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What space do I need for my business?
Starting a business with no money may be much easier if you can work from home or run a business that is largely mobile, such as a concierge or pet-sitting service. While these could involve the expense of using your personal car or purchasing a vehicle for the business, it will cost much more to get your startup off the ground if you need to buy or lease commercial offices, retail space, warehouses, or manufacturing facilities.
"Committing to fixed costs early on, such as rent and equipment leases, impacts cash flow," says Cliff Long, Small Business Banking Manager for First Horizon Bank. "Starting small is important."
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Do I need to hire employees to start my business?
One of the biggest expenses for any small business is employee salaries and benefits. Holding off on hiring will free up cash and offer you more flexibility to handle any fluctuations in revenue. If you need help right away, consider working with a part-time virtual assistant or other independent contractor. As your business grows, you may choose to add either part-time or full-time employees.
Even if you don't plan to start a solo service-based business from home, you can still start small, generate revenue, and funnel that cash back into the business. Just look at once-scrappy startups like Amazon, Apple, and Hewlett-Packard that began in garages and morphed into Fortune 500 giants.
Going the Traditional Route: Credit or Loans
Once you have an idea of how much cash you'll need to get your business off the ground, you might consider a small business loan or line of credit from a financial institution.
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Start with your banker.
Banks offer an array of financing options that can work well for small business startups, including SBA loansguaranteed by the U.S. Small Business Administration, factoring arrangements, secured credit cards, and personal loans, as Long points out.
"These options are all very different and require a wide range of accompanying documentation," he says. A good first step is to meet with a banker who can explain the different funding options and help you figure out which solution best suits your business.
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Prepare your business plan.
When you meet with a banker for the first time, it's important to bring along a detailed, thorough business plan, says Adrienne Sipe, Director of Government Guaranteed Lending for First Horizon Bank. "That way, the banker can gain a good understanding of what the small business owner wants to do," she says.
Your business plan should include at least two years of month-by-month income and cash flow projections, supported by detailed assumptions explaining how each number was derived, Sipe recommends.
Be prepared to answer detailed questions about your business plan and projections, Sipe recommends. "Be well prepared and organized in your presentation, as this is your first chance to make your best impression," she says.
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Bring your supporting documents.
In addition to your business plan, Sipe says, you should also bring with you:
- Two to three years of personal tax returns
- A current personal financial statement
- A resume that shows how your past experience will benefit your new business
The bank will pull your credit score once you apply for a loan, but you can obtain your own credit reports and take them with you to the bank, she says. Bringing your personal credit reports to the meeting will allow the banker to give more specific feedback about your business financing possibilities, Sipe says.
Getting More Creative: Small Business Funding Ideas
Trying to start a small business with no money? You do have other options besides seeking credit or loans from a bank. Possible creative funding sources include:
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Seek cash from angel investors.
Angel investors are individuals willing to put up their own capital to help fund a business. Angel investors often offer the funds in a lump sum and may act as mentors to the small business borrower. However, in the very early stages of starting a small business, it can be difficult to find the right angel investor and convince them to take a risk on your venture. You can look for an angel investor by networking in your local business community or through trade associations in your industry. Before you pitch, research the investors and use the details you find to help you fine-tune your pitch.
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Secure funds from loved ones.
Turning to family and friends is one of the most common ways to get startup capital. Your family and friends know you, trust you, and may be more likely than strangers to take a risk on your big idea. If you decide to borrow from family and friends, choose a business-savvy loved one who can understand the risks and benefits. Ask for a realistic amount, not a pie-in-the-sky sum. And, if you decide to take a loan, instead of offering a share in the business in exchange for funding, formalize the arrangement through a peer-to-peer lending service or put the terms in writing.
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Raise money on your own.
The main advantage to self-funding a startup is that it allows you to maintain maximum control. You don't have to spend time pitching yourself to angel investors or risk damaging a personal relationship if your business hits a rough spot. Not everyone has a large savings account, a big home that can be downsized, or an extra vehicle sitting in the garage. And tapping retirement funds to start a business can be very risky. Before you tap your own capital, take a realistic inventory of your assets and talk to your accountant or banker about whether self-funding makes sense in your individual situation.
Starting any new business comes with its own set of challenges. Starting one with little to no money means you'll need to be especially disciplined at the start. However, with the right business plan — and some creative thinking about the possible funding options that are available to you — you may be able to get your dream business launched with next-to-no money and then get the cash flowing in as your business grows.
