Running your own business is a big step into financial freedom. According to statistics, entrepreneurs earn more than average employees, and at the same time the business can be treated as a capital investment, as when you retire you can sell it. There is an article on our blog about small business grants, but they are given to existing companies. If you are just starting your business, investing your own capital or borrowing cash might be necessary. Just how to get a startup business loan with no money in your account?

What is a startup?

There is no clear answer to the question of what is a startup company. There are several characteristics of startups. These are:

  • The use of modern technology, however, much depends on the sector in which the company operates
  • Short operating period, usually less than 5 years
  • Aiming for rapid growth
  • High operational risk
  • Startups often have a changing form of organization and model, company management often experiments

You can base the financing of your company on money earned by it, loans from banks or investments made by venture capital funds, but this involves giving up some ownership of the company.

what is a startup

How to start a startup?

We have already explained that not every starting business is a startup. If you want to perform conventional services using already existing technologies, you have a project for the structure of the company, you are probably not starting a startup.

Don't worry, it's a very good thing! Getting funding for a startup is not an easy task. No one likes excessive risk unless they get paid properly for taking it. This is exactly what banks think when someone applies for a small business loan.

If you are still wondering how to start a startup, the answer will be 5 consecutive steps. It is highly suggested to keep them in order.

  1. Try to answer yourself what problem your company is supposed to solve. What is it going to deliver to customers, how is it going to make money and what can catch people's attention.
  2. Try to determine the target structure of the company. Do you need experienced people to help run the company, or capital? Do you want to be the sole owner, or sell some shares?
  3. Prepare a prototype. It doesn't have to be very polished, but it needs to show your idea and convince people. Even a truncated version of your product will be very helpful.
  4. Verify ideas and properly research the market. Every entrepreneur thinks his idea is perfect. But are you sure it is? It's better to stop work now than the moment you produce your first batch of products or finish your application
  5. Find investors. These can be angel investors or business incubators. No matter what you decide on-just find a good deal.

Risk

We are slowly approaching the answer to the question of how to get a business loan with no money, but before we do, let's address the topic of risk. Startups fail very often, due to a high level of operational risk that no one reduces or controls. Before you start looking for small business loans, which are provided by many institutions, try to estimate the risks.

Are you able to answer the following questions?

  • How many products do you need to sell for your business to start making money?
  • What is the biggest threat to your startup?
  • How much is your company worth?
  • Are you able to find a job quickly to be able to sustain yourself?
  • Can a company's bankruptcy deprive you of your personal assets?

If you're struggling with the above questions, are you sure it's worth borrowing money to grow your business? There’s always a risk involved in running a business, but entrepreneurs should always try to reduce it.

How to value a startup

By assumption, a startup requires outside funding, that is, for example, from business angels or banks, which often provide loans for small business purposes. However, please remember that an interesting business idea is not enough to convince people to give you money. That's why you should learn how to value a startup according to current standards.

While there are dozens of valuation methods, and they are one of the key success factors for many investors making money investing in startups, there are a few commonly known methods. In our article, we'll show you two options that should be just fine for you to start with.

Comparative method (benchmarking)

This is a fairly convenient method to use, but requires access to a large amount of data. In simple terms, it involves finding the maximum number of similar companies that have already been valued. This can be historical data, but it is important to take into account inflation and the degree of development of the sector

Pros:

  • Benchmarking is cheap
  • Benchmarking can be done in a few days

Cons:

  • Every company grows in different ways

Last transaction method

If you have already sold some of your shares and this took place recently (less than 18 months), and the subject of the transaction was a minimum of 5% of shares, it is acceptable to use the price at that time to determine the value of the company.

For example, if you sold a 15% stake in your startup in April 2022 for $18,000, according to the last transaction method, the value of your company is $120,000.

Pros:

  • This is probably the fastest of the methods to value a company
  • Last transaction method assumptions reject transactions that cannot be implied due to time or their small value

Cons:

  • Banks do not use the last transaction method for small business loans because it is a very uncertain way to determine the value of a company
  • For 18 months, the condition of your company may have changed dramatically, including a several-fold increase in the value of your startup

last transaction method

How to get a business loan with no money in institutions?

There are many institutions that offer loans for small business. Although banks are eager to lend, the interest rates are usually very high. According to a portal that specializes in comparing loans the APR ranges from 3.5% to over 30%. It is very common for lenders to restrict the ability to spend money and require the provision of very precise data on the company's situation.

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