How to start a business with no money

You want to start a business, but your capital is limited. Does that mean you can’t start a new business? Hardly.

That isn’t to say you won’t need to come up with some money upfront. But you can keep that to a minimum and, if you still need financing, there may be sources available. Just remember that even if financing is available, you’ll want to use as little of it as possible to keep your cash flow healthy.

Ready to become an entrepreneur? Here are eight ways to start a business with no money.

There are many businesses you can start today that require very little upfront capital. High on the list are businesses where your “product” is a service. Since you won’t be selling physical products, there’s no need for inventory, a shop to manufacture them, or warehouse space to hold them.

Many service businesses can truly be started on a shoestring. This is especially true if your business is internet-based. It will cost little more than setting up web hosting and designing a basic website. That can usually be done for a few hundred dollars. And if you’re tech-savvy, you may be able to do it yourself and save even more money. 

One of the most important realities in starting any business is that you need cash flow. Don’t expect to hang a shingle — or launch a website — with the expectation that money will begin rolling in from the get-go. It may take months or even years before you have anything resembling a steady cash flow.

A better strategy is to start your business as a side hustle. You can use your income from your current job to cover your living expenses and provide important benefits like health insurance until you have enough revenue from the business.

It’s a low-risk way to start a business, since you’ll be able to develop your cash flow while you’re still on another employer’s payroll. It also gives you room to make mistakes. Very few businesses are successful out of the starting gate. But if you start yours as a side business, you’ll be able to make a mistake or two and keep rolling forward.

Read more: Side hustle ideas: 25 ways to make money on the side

Many new business owners, overflowing with optimism, invest money in what might be best termed as appearances. That can include renting office space, buying furniture and equipment, and launching a costly marketing plan. That may seem like an enthusiastic start, but you’ll be spending a lot of money before you even earn your first dollar.

A better strategy is to begin with a minimalist approach. Purchase the least amount of equipment you need to start your business. That may be no more than a decent computer and a smartphone. You can add more equipment as it becomes necessary and your cash flow grows. 

If you do need additional equipment early in the process, look into buying it secondhand. You can often get decent used or refurbished equipment for a fraction of the price. Later, as your business grows, you can gradually replace the older equipment with newer and better ones. 

Use the same approach with office space. Start your business out of your home office or even your garage. The time to get dedicated business space at a cost will come once your business is up and running.

This is true throughout the business ownership cycle, but even more so when you first launch. Whatever you choose to invest in should be directly related to revenue generation.

Two natural investments will include marketing and any necessary training.

While it may be tempting to pay for a flashy marketing campaign, you can start small. Promote your business by participating in online forums, writing articles on related websites, and making generous use of social media.

When it comes to training, even that can be done on the cheap. YouTube is an excellent source of training on just about any topic you can think of, and is completely free to use. It’s also a potential marketing outlet that you could explore, if your business will lend itself to that kind of medium. 

Since you can’t afford to hire help early on, you’ll need to wear many hats as the business owner. That includes handling all the admin, accounting, marketing, tech support, customer service, and more. It’s a lot of work, but it will be worth it in the long run, as it’ll give you first-hand insight into how each part of your business operates.

You may not be able to do everything perfectly, but you can at least get things done. As your business grows, you can start hiring help for the areas where you’re weakest and focus on the parts of the business that you’re good at.

As your income grows, you should reinvest some of your cash flow back into the business.

This is known as internal financing. Rather than using loans to grow your business, you instead expand through reinvesting your cash flow back into the business.

Not only does that give you the capital needed to grow your business, but it also eliminates the need to take on debt. 

Of course, redirecting your cash flow into your business will reduce the amount of income you have available for living expenses. But the advantage is it doesn’t create a future liability that costs you in the long run. 

If you do need upfront capital and you either can’t qualify for financing or don’t want to go that route, you can bring in a silent partner.

A silent partner is someone who invests in your business, in exchange for an ownership stake in the company. But they don’t actively participate in the running of the operation.

You, as the active partner, will run the business. You’ll also be the frontperson, representing the face of the business. Customers and clients will see you as the full owner of the business because your silent partner will be just that — silent.

The advantage of a silent partner is that you won’t have loan payments to make every month. But bringing in a silent partner isn’t without drawbacks, either. The most obvious is that you’ll be sharing ownership with the silent partner. That also means sharing the profits.

That can also create issues on the operations side. Even though you will be in charge of day-to-day operations, the silent partner will still have a say in how the business is run. After all, a silent partner has an investment in your business, and that comes with a certain authority.

But perhaps the biggest disadvantage is when the business becomes profitable. At that point, you’ll be doing all the work, but sharing the profits with someone who’s invisible.

Think long and hard about bringing in a silent partner.

Unfortunately, the news here is mixed. There are ways you can get financing for your business, but each comes with its own set of limitations.

Business loans

While a bank loan would seem to be a natural option, small business loans are notoriously difficult to get, and banks are understandably reluctant to lend to business upstarts.

That’s why the best course of action for a small business is typically a more specialized institution. Microlenders and online lenders have much more flexibility in their lending decisions.

Read more: Best small business loans

Small business grants

Small business grants can be a great way to get financing for your business. The best part is that, unlike a loan, you don’t have to pay the money back.

There are all sorts of small business grants available from different sources. The federal government offers grants for businesses in certain industries, such as energy efficiency or research and development. State governments also offer grants, as do some corporations and private foundations.

One place to check is the Small Business Association. You can search their database to see if there are any opportunities that fit your profile. If you don’t find anything, you can also see if you qualify for any of their funding programs.

The downside of small business grants is that they can be very difficult to get. The competition is fierce, and the eligibility requirements are often strict. And even if you do manage to get a grant, it’s likely to be a small amount of money.

Read more: How to get money to start a business

Credit cards

These may be the easiest source of short-term financing, but they come with a few drawbacks. 

First, this is just about the most expensive source of financing. Interest rates are high, particularly on cash advances. And credit cards typically charge an upfront fee of between 3% and 5% on cash advances.

Read more: Best business credit cards for young entrepreneurs

Crowdfunding

With donation-based crowdfunding, people give money to your business based on their belief in the project and without expecting anything in return (unlike a silent partner or angel investor who takes a stake in the company). The most well-known crowdfunding platform is Kickstarter, but there are others, such as Indiegogo and GoFundMe.

Crowdfunding can be a great way to finance your business, but it does come with some risks. The most obvious is that you may not reach your funding goal. And even if you do, there’s no guarantee that people will actually follow through on their pledges. Or, if people do donate and you don’t follow through on your promises, you’ll have a line of angry donors.

Home equity loans and home equity lines of credit (HELOCs)

This will be an option only if you’re a homeowner, and have sufficient equity to borrow against. But just be aware you’ll be putting your home up as collateral for the loan. If your business fails, you’ll still be on the hook for the equity loan or line. 

Unlike a home loan, a home equity line of credit issues no money upfront. You’ll get a fixed amount that you can borrow against whenever you need it. That amount will be a large percentage of the equity you have in your home, which is the difference between what you owe and how much your home is now worth.

To qualify for a line of credit, you’ll need proof that you can pay your mortgage with your current income, as well as a strong credit score. If you choose this option, make sure your loan allows a draw period where you pay only interest. At the end of that draw period, you’ll begin making payments until the loan is paid in full.

Read more: When should you consider a HELOC?

Retirement plan koans

Under IRS rules you can borrow up to 50% of your vested interest in your plan, up to ,000. But the most obvious problem is that the loan depends on your continued employment. If you leave your job — which you will likely do because of your new business venture — you’ll need to repay the loan within 60 days.

If you don’t, the employer is required to report the unpaid principal as a distribution. That will be subject to both ordinary income tax and a 10% early withdrawal penalty.

Personal loans

For most start-up businesses, personal loans will likely be the best source of financing. These are widely available from online lenders.

You can borrow up to $100,000 without putting up any collateral, and with interest rates as low as 3.84% for fixed-rate loans. Loan terms are from three to five years, and there are typically no prepayment penalties Best of all, the loan proceeds can be used for any purpose at all, including starting a business.

Read more: Best personal loans

Now that you’ve got some solid tips on how to start a business, I want to point out two major expenses you need to consider before diving in: insurance and taxes.

Business insurance

You need business insurance for the same reason you need any other type of insurance: to protect your assets and cover your bases if something unexpected happens. Business insurance can cover everything from lost income to lawsuits, and more.

Read more: Best small business insurance companies

Taxes

Never forget to consider how much you’ll need to pay in business taxes. What you’ll pay will obviously depend on the type of business you run, but any small business can expect to pay income taxes, estimated quarterly taxes, and employment taxes.

Depending on your state, business size, business type, and more, you’ll pay different amounts in taxes, but it likely won’t be a small chunk of change. That’s why it’s important to work this number into your overall budget.

Read more: Tax deductions you can take as a business owner

As you can see, it is possible to start a business on a shoestring. The best types of businesses are the ones that rely primarily on your skills and talents, and not on a large investment in office space, equipment, or inventory.

Carefully plan your business start-up, with an eye toward keeping your upfront costs low. The better you’re able to accomplish that mission, the greater the likelihood your business will be a success.

Featured image: Tirachard Kumtanom/Shutterstock.com

Read more

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• How to start a business without a degree