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Updated Nov 03, 2023

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

You don't need to go into debt to start a small business. Here's how to do it without a loan.

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Donna Fuscaldo, Senior Analyst & Expert on Business Operations
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Despite the prevalence of small business loans, most entrepreneurs and startups bankroll their businesses on their own dimes. Data from the U.S. Census Bureau found that 64% of entrepreneurs use their personal savings and money from their families to start a business, while 16.5% take out a business loan. About 9% put startup costs on a credit card, and 8.7% use personal assets outside of savings. 

That’s good news for the small business owners who don’t want to take on debt to start their business. From utilizing personal savings to getting funds from your friends or family members, you can ensure your business sees the light of the day without loans. Here’s how to start a business without borrowing.  

Ways to bankroll your startup

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

Start out part time.

Does this seem surprising and almost impossible? Well, it can be difficult to launch a business in your spare time if you are already stocked up with existing work pressure. However, if you can find some time during the weekdays and dedicate your holidays entirely to your business launch, then this is definitely workable.

Spend the bare minimum.

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

FYIDid you know
When it comes to running a lean business, small business owners need to focus on cash flow management. Cash is king, especially when a business is starting out.

Operate with a small budget.

If you can’t bear the costs of office, furniture, energy bill, taxes, etc., think of alternatives. Here are some examples:

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

Editor’s note: Looking for a loan for your business? Fill out the below questionnaire to have our vendor partners contact you about your needs.

Seek funding from family and friends.

Though this might make you go weak in the knees, consider approaching friends and members of your family for some funding. Remember to have all 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. Also, remember to provide them with payback dates.

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 some things for your business, such as accounting, promotions, advertising, and bringing in new ideas. With an investor, on the other hand, you can be assured of funds to propel your ideas while you remain the sole proprietor.

TipBottom line
If you are considering a private investor for your small business funding needs, go in with your eyes wide open. An investor may want equity in the company plus a say in operations. Make sure you are willing to give that up before pursuing an investor.

Reinvest profits.

The fact that you are in business means you have high aspirations and intend to make a lot of your dreams come true. This could lead you to utilize whatever you earn as profit for the realization of those dreams. 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. Investment advice from experts can also be beneficial to ensure that excess funds are invested correctly so that you can reap their rewards.

Think of low-investment business ideas.

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

Consider crowdfunding or equity.

The internet has many websites that offer the option of getting funding from a huge pool of people. Instead of looking for funds from a single source, you can opt to boost your business via funds from a crowd. 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 will expect some percentage in return as equity, while some will seek other rewards. 

Bottom LineBottom line
From family and friends to crowdfunding, there are several ways small business owners can shore up capital to launch a business.

When bootstrapping your business makes sense

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 sources of cash 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. 

Did You Know?Did you know
When researching the best business loans, we found several lenders that provide affordable loans with flexible terms. Learn more about top lenders in our review of SBG Funding and our Rapid Finance review.

Remaining open to other funding options 

Even if you have chosen to bootstrap, stay open to seeking outside funds in the future. You don’t want to miss out on opportunities to grow – or to boost your business with other creative minds. So make informed decisions and let your business grow.

A lack of capital for business investment has never stopped a scrappy entrepreneur, as there are plenty of ways to run a successful business without taking on any type of loan. The most important factor is your willpower and commitment to success.

Mehul Rajput contributed to the writing and research in this article.

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Donna Fuscaldo, Senior Analyst & Expert on Business Operations
Donna Fuscaldo, who has 25 years of experience navigating the convergence of business, finance, and technology, is a trusted advisor to small business owners. Her expertise in business borrowing, funding, and investment strategies equips her to provide reliable counsel on everything from business loans to accounting and retirement benefits. Her analysis has graced publications like The Wall Street Journal, Dow Jones Newswires, Bankrate, Investopedia, Motley Fool, Fox Business and AARP, solidifying her authority in the field. Beyond her contributions to the financial landscape, Fuscaldo also lends her wisdom on employment matters, with her expertise sought after by platforms like Glassdoor and others. Armed with a bachelor's degree in communication arts and journalism, Fuscaldo has the unique ability to simplify complex business and career-related topics into actionable insights. This makes her a valuable resource for professionals seeking practical solutions in today's dynamic business environment.
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