You Can Do It: How to Start a Business Without a Loan

How to start a business without a loan

There are several ways to shore up capital for your enterprise. 

Start out part time.

Does starting a business part time seem surprising and almost impossible? It’s true that it can be difficult to launch a business in your spare time if you’re already overwhelmed with work. However, if you can find some time during the week and dedicate your holidays entirely to your business’s launch, this method is doable.

Minimize expenses.

Whether a startup is funded by a loan or self-funded, beginning slowly and spending only on the necessities will make financial sense until the business gains momentum. For instance, you could run the business out of your home for a year or so rather than renting office space. Opting for used equipment and using free sources to market your brand or product are other ways to keep costs low.

If you can’t bear high overhead costs, think of alternatives. Here are some examples:

• Rent a ready-to-use office.
• If the office has inadequate space, book a meeting room by the hour or day.
• Hire temporary staff or freelancers rather than full-time employees.
• Outsource tasks based on affordability and the nature of the work.
• Conduct business online rather than investing in a brick-and-mortar location.

Seek funding from family and friends.

Although you might be hesitant about it, consider approaching friends and family for funding. Remember to have the details of your business idea and projections for the current and next year in place. Having these figures handy can help you gain confidence and ensure that your pitch will be perfect for sourcing funding from family and friends. 

Find a partner or investor.

Having a like-minded business partner can be beneficial in many ways. You could find someone to take care of a certain aspect of your business, such as accounting, promotions, advertising or innovation. With an investor, on the other hand, you can receive funds to propel your ideas while remaining the sole proprietor.

Reinvest profits.

If you’re starting your own business, it means you have high aspirations. However, keep in mind that you have just started out, so reinvesting your profits in your business is important if you intend to stay away from loans. Consider getting expert investment advice to ensure that excess funds are invested correctly so you can reap their rewards.

Think of low-investment business ideas.

Instead of launching a business that requires a huge upfront investment, maybe you could start a service-oriented company, consultancy, freelance-based company, outsourcing company or brokerage. Explore some low-cost business ideas before you plunge into one that will instantly break your budget. 

Consider crowdfunding or equity.

Instead of looking for funds from a single source, you can opt for crowdfunding. You can offer returns to people who invest in your business and ensure that your business idea does not die. Most of the sites that allow crowdfunding expect some percentage in return as equity, while some seek other rewards. 

When does it make sense to start a business without a loan?

Bootstrapping is beneficial for many business owners who don’t want to start out owing money. Whether you use your savings or find investors, you won’t have to worry about paying back money. That means all of your profits can go back into running and growing your business. For business owners who want to grow slowly and stay small for a while, using personal capital or other funding sources makes a lot of sense.

When a business loan is a better alternative

Small business owners who are in fast-growth mode or want to take advantage of an opportunity but do not have the cash on hand can benefit from business loans and alternative financing. When you use your own cash or an investor’s money, you may have to operate on a tight budget that precludes you from chasing growth. When interest rates are low, business loans can be an affordable way to bankroll growth. 

Business loans can also be a viable way to cover the cost of expensive equipment or real estate. The Small Business Administration offers business loans with low interest rates and repayment terms up to 30 years, making the payments very affordable. 

Remain open to other funding options 

Even if you’ve chosen to bootstrap, stay open to outside funding sources. You don’t want to miss out on opportunities to grow or boost your business with other creative minds. 

A lack of capital for business investment shouldn’t stop an entrepreneur, as there are plenty of ways to run a successful business without taking out a loan. The most important factors are your willpower and commitment to success.

Kimberlee Leonard and Mehul Rajput contributed to this article.