5 Ways to Start a Business When You’re in Debt


Deciding to start a small business is one of the most rewarding decisions of your life. But not only does it take hard work to make it successful—you’ll need money to get the company off the ground in the first place. And when you’re in debt, that can seem impossible.

Although the size of your initial investment will vary based on the type of company you hope to start, even home-based micro businesses could cost several thousands of dollars to launch.

Finding ways to finance your small business can be tricky, especially if you’re already trying to pay off other loans or bills. Having a lot of debt could make it hard to access traditional sources of company financing, such as business loans. And since it’ll probably take a while for your company to become profitable, you’ll also have to figure out how to afford your living costs in the meantime.

This all might sound daunting, but don’t give up on your entrepreneurial dreams. Consider these five steps to cutting expenses and securing funding so you can turn your idea into reality.

1. Reduce your expenses.

If you want to start a business when you’re deep in debt, the first step often involves cutting your personal expenses to the bone. It’s a big step—but so is starting a business.

Slashing your cost of living gives you more money to invest in your business. And you’ll find that surviving financially on a day-to-day basis as you wait for your company to become profitable is substantially easier.

“When you bootstrap, sacrifices are made on everything from cutting back staff to penny-pinching your personal spending habits,” says Deborah Sweeney, CEO of MyCorporation, a company that helps people fund and maintain businesses.

We get it if you’re not interested in whittling your personal budget down to the bone. You’ll still need the extra cash, though, so focus first on these one-time changes that could lead to major savings:

  • Consolidate credit cards. If you have high-interest credit card debt, making monthly payments eats up a lot of your cash. And paying the minimum balance due means you’ll spend a fortune on interest. To cut costs, consider consolidating your credit cards with a personal loan. This could lower your interest rate and monthly payments, making repayment faster and cheaper.
  • Refinance your student loans. Student loan refinancing could also lower the interest rates and monthly payments on your school debt. You don’t want to refinance if you’re planning on taking advantage of federal protections, such as income-driven repayment plans or loan forgiveness programs. But if you won’t benefit from these federal protections, refinancing might be a good option.
  • Move to a cheaper area. Picking up your life might seem off the table, but don’t dismiss it outright. Living in an expensive area or costly apartment might mean too much of your money goes toward basic needs, like rent or food. That leaves too little to fund your business. Consider moving to a cheaper place so you won’t need as much income to get by.

2. Apply for grants.

Although you might not want to jump right into small business loans to start your business, you probably won’t turn down free money. Good news: Small business grants, which don’t have to be repaid, might be available to fund your company.

Romy Taormina, cofounder of Psi Health Solutions, was able to fund her startup using a mix of savings and grants. Awards she won included “grants from corporations such as Huggies, women’s organizations such as the National Association of Women’s Business Owners, and government agencies such as the U.S. Small Business Administration through their State Trade Expansion Program.”

Taormina explains that grants were the ideal way to fund her enterprise. She not only received money but free press, networking opportunities, and prestige. There are lots of targeted opportunities for grants, too, including grants for women entrepreneurs, grants for minority-owned business, and more.  

To land the grants, however, Taormina had to have a solid business plan in place. And you will, too, if you want to be competitive. She also notes that it’s time-consuming to apply for grants, and you’ll have to understand that you won’t be a shoe-in for money. “Make sure to apply only to grants where you meet all the criteria and can make a strong pitch,” she advises.

3. Crowdfund your operations.

Crowdfunding allows you to secure backing for your business without taking on debt like small business financing until you’re ready. In order to be a good candidate to get the attention of the crowd, though, your project needs to be interesting enough to capture that attention.

There are a number of different websites where you can pitch your ideas and ask for crowdfunding, including Kickstarter, RocketHub and Indiegogo.

To be successful at crowdfunding, John Boitnott of Entrepreneur recommends you:

  • Aggressively self-promote on social media
  • Make an engaging video for your crowdfunding page
  • Create a plan of action for what you’ll do after asking for funding

By taking the time to pitch your product in an effective and professional way, you can maximize your chances of getting the money you need.

4. Take on a side-hustle.

Starting a small business takes a lot of time and energy, especially if you want to do it right. Although you need time to devote to your organization, taking on a side job before you get your business off the ground could give not only keep you afloat, but also give you more money to invest into your company.

Kershan Bulsara, co-owner of Roofmaster, funded his business with savings initially. He was also able to work out deals with suppliers because of his good personal credit. But even though he didn’t need much money to get his company started, he wasn’t initially earning a living solely off his enterprise.

“Given roofing is a seasonal business, we faced challenges of not being able to build up enough cash in the first few years to sustain our expenses through the winter,” he said. “This meant we had to work additional jobs in the winter to pay for our living expenses.”

If you need an alternative source of income, consider a side-hustle with flexible hours that won’t interfere with your efforts to make your primary business a success.

5. Take a loan from friends and family.

If no other options suit you, or you need more money to start a business than you can come up with on your own, you don’t necessarily have to go straight to a small business lender.

“When starting my real estate fund, I first turned to friends and family members,” says Max Soni, founder and CEO of Delancey Street. “This was the right solution because they were willing to lend me money at a low interest rate. In addition, even if I lost the money, they’d be willing to give me some time to repay them, versus commercial lenders who’d immediately liquidate my assets.”

Granted, not everyone has this option. And Soni acknowledges his request sometimes put his loved ones in the difficult position of saying no to someone they cared about. However, he prepared a pitch and had a plan to pay back his family members—even if the business failed.

Make sure you take a cue from this advice. Before asking friends and family, have these important plans in place and make sure to treat the loan like a business transaction.

The Bottom Line

Ultimately, every person’s financial situation is different. What’s right for one new company might be the wrong approach for another. It’s nice to know, though, that even if your finances aren’t in perfect shape, or you’re working on rebuilding a stash of cash, you still have options to get a business off the ground.

The key is to not let your existing debt hold you back from realizing your dreams. Instead, look for ways you can cut your costs and fund your business responsibly.

Andrew Josuweit

Andrew Josuweit is CEO of Student Loan Hero. After he graduated with $107,000 in student loan debt, he realized he wanted to help others become debt-free and financially independent.

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