A loan can help your business meet its short and long-term goals, but many business loans require down payments. If you’re a new business owner or don’t have cash flow, this can be a problem. The good news is that there are no money down small business loans available.
You can secure the funds you need without having to come up with a down payment with a money down business loan. In this article, we will discuss what no money down business loans are so you can determine whether they make sense for your particular situation.
What are No Money Down Business Loans?
No money down business loans are business loans you can take out without a down payment. It might seem that a no money down small business loan is the best option, but there are some caveats to be aware of.
The first thing you need to know is that no money down financing requires you to put down collateral, such as inventory or equipment. This reduces the risk for the lender, but it puts your assets at stake. If you default on the loan, the lender can seize the asset.
Most lenders who offer no money down small business loans charge high interest rates. This can significantly increase the overall cost of your loan. In fact, it may run you thousands of extra dollars that you may be able to save if you go with a loan that does require a down payment.
Some no money down small business loans come with late fees and origination fees. In addition, if you pay off your loan early, you might be on the hook for a prepayment penalty.
The Pros of No Money Down Business Loans
- No money down: you can receive the additional funds you need without a down payment with a no money down business loan. If you have cash flow issues, this is a great benefit.
- Lenient requirements: most no money down small business loans come with lenient requirements. You might be able to get one if you have no credit history or a bad credit score.
- Flexible: no money down financing is flexible, meaning you may use the funds on payroll, office supplies, real estate, equipment or anything else for your business.
The Cons of No Money Down Business Loans
- Collateral required: you have to back a no money down business loan with collateral, but it puts you at risk for losing the asset if you don’t repay the loan.
- High interest rates: many no money down loans have high interest rates. These rates can increase the overall cost of your loan.
- High fees: no money down loans is known for their high fees which can add hundreds or even thousands of extra dollars.
The Types of No Money Down Small Business Loans
There are a number of no money down business loans you can choose from such as:
- Term loans: you will get a set amount of money upfront and pay it back via monthly payments over the term of the loan.
- Business line of credit: this works like a credit card, and you can withdraw as much or as little as you’d like up to your credit limit.
- Invoice financing: invoice financing is where you get financing in advance in exchange for outstanding invoices.
- Equipment loans: you can receive up to 100% of the money you need to buy a piece of equipment.
- SBA microloans: the SBA can give you up to $50,000 and doesn’t have a down payment requirement.
The Bottom Line
It’s reassuring to know there are several options if you don’t have the cash to cover a down payment. Before you commit to a no down payment small business loan, review the pros and cons first. Depending on your goals and current financial state, it may make sense to save for a down payment and land a loan with better rates and terms.