One of the most often-repeated bits of business wisdom is that it takes money to make money. While that’s not a hard and fast rule, it’s safe to say that having some extra cash available improves your chances of starting and running a successful business.

Fortunately, your startup capital doesn’t have to come from your own bank account. You can get funding from countless external sources. If you could use a little financial help getting your business off the ground, here’s how to start a business with no money.

How to Start a Business With No Money

1. Ask Your Friends and Family To Fund Your Business
2. Apply for a Small Business Loan
3. Look for Business Grants
4. Seek Out Potential Investors/Angel Investors
5. Consider Crowdfunding
6. Start Part-Time

1. Ask Your Friends and Family To Fund Your Business

Convincing a lender to give you money for your new business idea can be a daunting prospect. Lenders know that you might fail, and they won’t take a risk on you lightly.

It’s often much easier to get funding from someone who knows you personally and cares about your success as a business owner.

They’ll also usually give you a lower interest rate, which can significantly reduce your finance charges and lessen the burden of your loan payments.

You may even be able to find friends or family that are willing to give you a little money outright, though that can trigger gift tax issues if they give you more than $15,000 in a year.

However, while convincing your personal network to believe in you might be easier than convincing a stranger, you shouldn’t expect anyone to hand you money for nothing.

It’s a good idea to ask for financing from your friends and family with the same level of professionalism you would have with a lender.

Sell them on your business plan with market research and evidence of your potential buyers. Document everything, and follow through on your commitments. 

Finally, be aware that borrowing from people you know personally means taking on additional risks. If you can’t pay them back, you could harm them financially as much as yourself, which could also damage or destroy your relationship.

2. Apply for a Small Business Loan

If you can’t or won’t go to your friends or family for financing, there’s nothing wrong with turning to a lender. Small business loans are a great way to get a large lump sum of money to invest in your new operation.

Generally, your first choice should be a traditional financial institution like a bank or a credit union. Their loans have the best terms, including the lowest interest rates, highest principal amounts, and most favorable repayment lengths.

Naturally, they can be tough to qualify for, especially in the earliest days of your company. Traditional institutions often have strict eligibility requirements, which may include:

• Minimum time in business
• Industry or location restrictions
• Minimum personal or business credit scores
• Minimum annual revenue

For example, you must be in business for at least two years and bring in $100,000 in annual revenue to apply for Bank of America’s unsecured business loan.

However, if you do qualify, you can get up to $100,000 and pay as little as 4.75% interest over a loan term of up to five years.

Those who can’t qualify for a small business loan from a bank or credit union may have to resort to an online lender. They have looser qualification requirements, but they also offer much less favorable terms.

For example, to qualify for a business loan from OnDeck, an online lender, you only need to have been in business for a year, though they still want you to have at least $100,000 in annual revenue.

You pay a steep price for getting that funding a year early, though. Their loans start at 35.9% APR and have a maximum repayment term of only two years.

If you want to improve your score to get a more affordable business loan, Credit Strong’s business credit builder loan can help.

Because we don’t need to check your personal credit, you can apply with your Employer Identification Number instead of your Social Security Number.

Once you’re approved, we place your funds in a savings account to secure the loan, then help you build business credit by reporting up to 120 months of payments to the business credit bureaus.

There are no fees if you want to cancel ahead of time, so you can keep improving your score for as little or as long as you want. Give it a try today!

3. Look for Business Grants

You may think of debt and equity financing as the only two ways to get working capital as a business founder, but grants are another viable solution. In fact, they’re probably the most beneficial choice, if you can manage to secure one.

A business grant is as close to free financing as you’re going to get. It’s essentially a gift to your business intended to support a cause. Small business grants can come from large companies, non-profit organizations, and government agencies alike.

As a result, grants usually have specific eligibility requirements that ensure they go to their intended recipients. For example, the Targeted Economic Injury Disaster Loan (EIDL) Advance is a $10,000 grant for businesses impacted by COVID-19.

To qualify for the grant, you’d need to prove that your business meets the following criteria:

• Operates in a low-income community
• Previously applied for a COVID-19 EIDL loan
• Has 300 employees or less
• Suffered a 30% revenue reduction due to the COVID-19

Proving that you meet these kinds of eligibility requirements can be a lot of hard work, but it’s well worth it if you qualify. Just make sure you target grants that fit your business’s profile and needs. 

Fortunately, many different organizations offer business grants. Some great places to start looking include the federal government in general, the Small Business Administration, and local agencies.

4. Seek Out Potential Investors/Angel Investors

One of the best ways to bring your small business ideas to fruition quickly and effectively is to partner with a knowledgeable and wealthy investor, commonly known as an angel investor.

Unlike venture capital (VC) firms, angel investors usually prefer to invest in startups or entrepreneurs in their earliest growth stages. That makes them one of the best options for your initial funding rounds.

In addition to providing financing for your company, angel investors often bring relevant expertise to the table. They tend to invest in industries they know well and get involved in the business to make sure their investment pays off.

Note that angel investors are a form of equity financing, which means you’ll have to be willing to give up some ownership in your company to get it. That usually makes it more expensive than debt in the long run, even though you don’t take on monthly payments.

If you’re willing to give up a portion of your company in return for financing and expert help, angel investors might be a good fit. Unfortunately, they can be harder to get than a business line of credit or a loan.

In all likelihood, you’re going to need to network extensively to get in front of the right people. Many angel investors find their investments only through referrals.

5. Consider Crowdfunding

Last but not least, you can also consider using crowdfunding to finance your new business. Crowdfunding generally refers to any form of financing that entails gathering small amounts of capital from a large number of people.

Because each investor gives a relatively small amount of money, it can be an easier sell. The idea is that people may be more willing to gamble on your business with $100 than $10,000.

Here are a few types of crowdfunding to consider:

• Equity crowdfunding: If you don’t mind giving up a portion of the ownership of your company, equity crowdfunding can be a great way to raise money. It’s very similar to an initial public offering (IPO) in that you issue shares of your company in exchange for cash, but your business stays private.
• Debt crowdfunding: If you’d prefer not to give up any of your company’s equity, you can stick to debt crowdfunding, which involves borrowing money from many different people and promising to pay them all back later. 
• Rewards crowdfunding: Those who don’t want to give up ownership of their company or take on the financial responsibility of debt may want to consider rewards crowdfunding. Instead of shares or debt payments, you can reward investors with a free or discounted product.

Unfortunately, crowdfunding typically means going through a third party, and they’ll likely take a fee or a percentage of your funding in exchange for connecting you with your investors.

For example, Indiegogo is a crowdfunding platform where an entrepreneur can take a great idea all the way from concept to production.

Each contribution you receive is subject to a transaction fee equal to 2.9% plus $0.30. They also take 5% of your total funds raised.

6. Start Part-Time

As a would-be small business owner, it can be tempting to quit your job and dive into a great business idea head first, but that’s not always the best approach. If you’re trying to start a business with no money, it’s often better to wade in slowly and start part-time.

There are several reasons this can be the better approach when you’re low on funds. First and foremost, you still have the cash flow from your day job coming in while you’re getting your business off the ground.

Not only can you use a portion of those earnings to fund your business if necessary, but it takes some of the pressure off of your new endeavor to be profitable as soon as possible.

Most businesses need time to start bringing in money, whether they spend it figuring out how to find their first potential client or building a product. It’s hard to operate at peak efficiency during that period if you’re feeling stressed about paying your bills.

Second, you get to experience the business model and determine whether it’s a good fit for you before committing all your time and money to it. If it turns out to be a mistake, you can change your mind, create a new plan, and pivot.

However, there’s an obvious catch. Namely, you have to maintain your day job while simultaneously opening your business.

Not only will you have less time and energy to devote to your new company, but you can quickly burn yourself out by trying to do both at once.

What Kind of Business Can I Start With $1,000?

Contrary to popular belief, many great business models require little upfront capital investment. Even if you have money to spare, it may be a good idea to start businesses with low startup costs because they present so much less risk.

Generally, the easiest businesses to start with $1,000 or less are service businesses. There’s less need for expensive equipment, materials, or employees. For example, consider the following options:

• Coaching: One of the best ways to turn a valuable skill set into a small business is to share it with others. All you’d need is a computer, website, and wifi, but even those might be optional if you already have potential customers and meet with them in person instead of operating as an online business.
• Consulting: It’s possible to convert many full-time jobs into businesses by switching from employee to consultant. For example, if you’re an accountant at a public firm, you could start your own business providing those same services to clients directly as an independent contractor.

In contrast, consider opening a coffee shop. Starting one would require paying for real estate, furnishing and decorations, equipment to make the drinks, and supplies like coffee beans and milk.

Of course, there are drawbacks to service businesses. The most significant is that they can be hard to scale and turn into a passive source of income. They might not take much money to get started, but they still require time and energy.

For example, imagine starting a business coaching college students interested in law school through the bar exam. You probably wouldn’t need any significant capital investment, but the company couldn’t function without you.

Your earnings would be limited to the amount of time you’re willing and able to work, and the only way to scale past that would be to hire and train additional help, which would again, cost money. Whatever you choose, there’s always a price to pay.

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