United States
Updated: February 20th, 2024
Companies go looking for a loan to get capital, not lose it. However, many small business loans require expensive down payments that can eat into a business’s cash flow. You essentially have to buy the loan, which isn’t always possible—especially if you need immediate cash elsewhere in the company.
Fortunately, there are plenty of no-money-down business loans that can help get you out of a bind. These loans waive the down payment in exchange for collateral, higher interest rates, and other fees. No-money-down business loans usually aren’t cheaper in the long term, but they’re the perfect small business financing option if you don’t have money on hand for a hefty down payment.
Below, we’ll walk you through the five best no-money-down business loans and what you need to qualify for each of them. Time is money, so let’s get right into it.
Not every no-money-down loan option is going to be right for your business. Some are unnecessarily expensive, and others can get you stuck in a new rut. Our list of loans are reliable and relatively less expensive:
Keep in mind that no-money-down business loans aren’t the best option for everyone. While a loan with no down payment might sound enticing, remember that nothing is free—you’ll be covering that cost somewhere else in your loan. If you have the capital to pay a down payment on a loan, sometimes that’s the best option for your business.
These loans best serve businesses that aren’t able to afford a down payment at the moment. If your cash flow is low or you need an influx of cash to return a healthy return on investment (ROI), there’s a good chance a no-money-down payment can get you out of a bind.
Terms loans are the classic, tried-and-true business loan. You’ll receive a lump sum of cash that you’ll pay off in regular, predictable increments over the life of the loan. These loans don’t require down payments, but some lenders will demand collateral.
Collateral comes in various shapes and sizes. Here are a few examples of collateral that you could provide:
You also might need to pay an upfront loan fee to secure a term loan: these include application fees, origination fees, and more. While it’s still an expense, it’s nothing compared to the 20% or more down payment required to qualify for other loans.
Microloans are similar in nature to term loans—just smaller. Their size makes them less risky, which is why most lenders don’t require down payments for them. The most popular microloan option is an SBA microloan. This program offers businesses loans up to $50,000, but the average size is usually around $13,000.
You’ll have to work with an SBA-approved intermediary lender to secure a microloan. Each lender will have its own lending and credit requirements, which may also require collateral or a personal guarantee. The use of microloan funds is also a bit more limited in scope than your traditional term loan. Microloans can be spent on:
If you can’t afford a down payment on a business loan, it’s probably because your cash flow is hurting. That’s where a business line of credit comes in handy.
A business line of credit extends your working capital with a revolving line of credit. You’ll be approved for a certain amount of money (based on your credit score, revenue, years in business, etc.), and you’ll have the freedom to tap into that cash when you want, for how much you want, for what you want. You’ll pay interest on the portion you borrowed (not the entirety of your line), and you’ll get access to the original amount as soon as you repay what you’ve used.
Lenders usually require collateral or a personal guarantee on secured lines of credit. Lenders typically offer unsecured lines of credit, too, but you’ll need a solid credit score to qualify and will likely have to face higher interest rates.
Invoice factoring (also known as accounts receivable financing) lets you trade your customer’s unpaid invoices for immediate money. If your cash flow is hurting and you can’t wait around for 30 days or more for customer payments, invoice factoring can free up that capital.
Typically, a lender will pay you up to 90% of the value of your invoice upfront—you’ll receive the remaining balance once the lender collects payment from your client and subtracts their factoring fees. Since lenders collect money from your customers, they’re less concerned about your creditworthiness and more interested in your customers.
Invoice factoring requires no down payment, and it usually has no collateral demands, too—your unpaid invoices serve as the collateral.
Big investments in real estate, equipment, renovations, and the like will require hefty loans to cover, but you can satisfy several day-to-day expenses with the swip-swipe of a credit card. Business credit cards operate much the same way as personal credit cards—you swipe now and pay later.
You can find plenty of no-annual-fee credit cards on the market. These require no “down payment,” and they usually have decent cashback rewards, bonuses, and maximum lending amounts. However, if you can’t pay off your card month after month, you’ll likely face high-interest rates on your spending.
If you need a loan specifically for equipment purchases, consider equipment financing. These loans typically waive down payments and collateral requirements—the equipment is the collateral.
Not every lender will offer 100% cash for your equipment purchase, though. Depending on the equipment you’re financing, some will only provide 80% so that they have a greater chance of recovering their funds if you default on your loan. That means the remaining 20% or so is up to you to cover, and that essentially becomes a down payment on its own.
Shop around to find a lender willing to give you 100% of the cash without outrageous interest rates.
Michael Jones is a Senior Editor for Funding Circle, specializing in small business loans. He holds a degree in International Business and Economics from Boston University's Questrom School of Business. Prior to Funding Circle, Michael was the Head of Content for Bond Street, a venture-backed FinTech company specializing in small business loans. He has written extensively about small business loans, entrepreneurship, and marketing.
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