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NGExpert financial copywriter
Page written by Chris Godfrey. Last reviewed on September 30, 2024. Next review due October 1, 2025.
It’s the old chicken and egg dilemma – you need a loan to start a new business, but you can’t get a loan until your business is already making money. So, what to do? The good news is that although it is more challenging to obtain funding for a new business without revenues, it’s not impossible. Lines of credit and other types of borrowing for startups and organizations without revenues are available if you prepare in advance… and know where to look.
A business line of credit – also known as a revolving line of credit – is a business loan that functions like a high-value business credit card. Unlike a standard term loan, where you get all the cash in one lump sum, revolving credit lines allow businesses to withdraw as much as they want – up to their credit limit – from a floating loan account.
The key benefit of this type of borrowing is that you only pay interest on the amount you withdraw, not the whole credit line. This can significantly reduce your finance costs whilst giving you reassurance that extra funds are available if and when you need them. Businesses typically pay the line back with regular payments, or by transferring funds from their business bank account to the credit line as their cash flow allows.
Important note: Business credit lines can often be obtained on an unsecured basis. However, if your business is very young or your credit history is weak, collateral may be required.
Yes. Although it’s never easy to obtain business loans for young businesses, you’ll have better chances of success with lenders who specialize in providing capital for startups and low or no revenue organizations. These type of lenders will typically offer credit lines and other types of business loan that are suitable for startups, including business credit cards, equipment financing, or a merchant cash advance.
Our line of credit calculator can be used to estimate your potential borrowing costs and payments for a line of credit. It takes into account factors such as the interest rate, credit limit, and repayment terms.
This calculator is intended for illustration purposes only and exact payment terms should be agreed with a lender before taking out a loan.
In most cases, startups or organizations that lack revenues will need the following to get a business line of credit:
You should also be prepared to provide collateral with a value that is at least equal to the amount you wish to borrow. Collateral can be real estate, land, or other major assets. Lenders typically ask for this type of security when businesses have weak trading results or when the business owner or principal has poor personal credit.
If you don’t have sufficient collateral to support the loan, you could consider bringing a co-signer into the deal. This would be someone you know who has good credit and/or assets and who is prepared to backstop the loan in case of your default.
Lastly, if you lack collateral and cannot bring in a co-signer, you may be able to obtain funding from lenders who specialize in loans for borrowers with bad credit. However, this type of borrowing is usually more costly than regular business lending and the sums you may be able to borrow will often be much smaller.
Business lines of credit are custom deals, shaped to fit your business. The sum you can borrow, the interest rate you’ll pay and other terms and conditions will vary from one lender to another. It therefore makes sense to shop around before settling on a deal. You can do this by approaching banks, credit unions and online lenders one by one, or you can use the services of a loan marketplace that will immediately introduce you to a choice of credit line deals from different lenders. Some marketplace platforms can also give you advice and help you with the application process. This can be especially useful for borrowers who have never taken out a business line of credit before.
Business lines of credit can be used for almost any business purpose, although they are typically utilized for working capital, covering dips in cash flow or for emergency expenditures.
Common uses include:
Less common but other allowable uses for your business line of credit include:
Like all other types of borrowing, business lines of credit for startups have their advantages and disadvantages:
Pros:
Cons:
Just because your startup is too new, your credit score is too weak, or you lack sufficient collateral to obtain a business credit line or standard loan, it doesn’t mean you can’t obtain funding for your new venture. Alternative financing options include:
Equipment loans are ‘self-collateralizing’ – the asset you’re financing acts as security, similar to a car loan or a residential mortgage. Use the equipment as you pay for it while the lender maintains a lien on the machinery. No other collateral is required. Once you pay the loan back, you own the equipment outright.
Merchant cash advances are suitable for businesses that accept customer payments by credit and debit card. Borrow against the value of your card sales. As your card sales increase, your borrowing limit goes up. Pay the loan back with a fixed percentage of your card sales on a daily, weekly or monthly basis. Your sales act as security for the loan, no added collateral is required.
Available from lenders who are part of the US Small Business Administration lender network, SBA microloans can be obtained up to $50,000 in value. Designed for startups and organizations that have difficulty accessing traditional business finance, SBA microloans typically come with more relaxed qualifying rules and can be obtained with FICO scores as low as 500, or even with no credit score at all.
Business grants are free money, they do not have to be repaid if you spend them properly and in most cases, funders do not consider credit scores when considering applications. The good news is, there are thousands of grants available across the US and they are provided by federal, state and local governments as well as foundations, non-profits and other organizations. The downside to this route is the fact that small business grants are usually highly competitive, slow to fund and often come with strict qualifying rules.
Crowdfunding is offered by various online platforms. You create a pitch and then post it to the platform with the goal of attracting donations from viewers. Although it may be tough to raise large sums in small donations from hundreds or even thousands of donors, this cash is essentially free as there is no interest to pay and you do not need to repay the money if you spend it where you said you would. Your credit score has no impact, but an eye-catching idea and a powerful pitch is essential to succeed with this funding option.
No matter if you’re seeking your first business line of credit or you’re a seasoned borrower, working with business finance experts can make all the difference when applying for funding. Contact Swoop to discuss your borrowing needs, get help with your application and to compare high-quality business lines of credit from a choice of lenders. Give your organization the financial flexibility it deserves. Register with Swoop today.
Written by
Chris is a freelance copywriter and content creator. He has been active in the marketing, advertising, and publishing industries for more than twenty-five years. Writing for Wells Fargo Bank, Visa, Experian, Ebay, Flywire, insurers and pension funds, his words have appeared online and in print to inform, entertain and explain the complex world of US consumer and business finance.
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At Swoop we want to make it easy for SMEs to understand the sometimes overwhelming world of business finance and insurance. Our goal is simple – to distill complex topics, unravel jargon, offer transparent and impartial information, and empower businesses to make smart financial decisions with confidence.
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