How do you start a business with no money of your own? Generally, you’ll need to spend at least a little money to get started, even if it’s just to register with the state and get your business license. Outside funding sources can supply additional startup funds as grants, gifts, loans, or investments.
Service businesses requiring minimal equipment, such as dog walking, writing, or housesitting, are often the cheapest to start. However, check your local and state regulations. Professional service businesses, like landscapers or carpenters, generally must pay for bonding and insurance. Businesses selling products, like software or home dcor, may require a large upfront investment.
Bank loans are a common way to fund a new business. Some banks offer loans backed by a partial guarantee from the US Small Business Administration (SBA). The SBA specializes in providing loans to businesses that otherwise have a hard time finding private bank loans.
With a well-written business plan and extensive financial data, you can approach banks for a privately-backed or SBA-backed business loan. Note that SBA loans are not available to people who are delinquent on past SBA loans, to businesses owned 20% or more by someone who is incarcerated or on probation, or to businesses primarily engaged in lending.
Some aspiring entrepreneurs ask friends and family to help them directly with personal gifts or loans, to start a business with no money of their own. It’s wise to sign an agreement with anyone giving you a gift or loan, establishing the terms, such as a repayment schedule or statement of how the money will be used. Loan agreements often take the form of promissory notes.
For seed money to start an innovative and exciting business, consider using a crowdfunding site to fundraise online from your friends, family, and networks. You’ll need a solid business plan, good promotional materials, and a set of rewards for different funding levels to successfully raise money this way.
Consequently, crowdfunding is not exactly cheap or free. You should register your business in your state and be prepared to invest some money in online promotion first. Also, note that you won’t get all the money you raise free and clear, since you’ll use some of it for the rewards.
Angel investors and venture capitalists may be good sources of capital for a new or developing business. In particular, tech startups, finance and investment companies, and inventors often approach these kinds of funders. You’ll need a polished presentation and a clear and realistic business plan.
Angel investors are usually wealthy people or groups of wealthy people who invest smaller amounts of money in brand-new businesses (say, $50,000). They tend to conduct less risk evaluation and due diligence up front.
Venture capitalists raise money from multiple sources, investing in businesses with high growth potential. They can offer larger investments (millions of dollars) than angel investors. However, they usually don’t want to invest until after the business is already started. They will also take more time to evaluate the risk of investing.
Remember that even after you’ve secured funding, it still takes months, or even years to become profitable. Every business will need reliable funding to get started.