Interest-free business loans are a bit of a unicorn in the business financing world. While a handful exist, you probably won’t find one at your local bank or online lender. That’s because interest is a big part of how lenders make their money.
To find a 0% interest loan, you’ll need to look to nonprofit organizations, community lenders and government-backed programs for potential options. Many of these loans are only available to business owners in certain areas or those that meet specific requirements.
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What is an interest-free business loan?
An interest-free business loan, or 0% interest loan, is a small-business loan that doesn’t charge interest on the amount you borrow.
So if you borrow $20,000 at 0% interest, you only pay back $20,000. Keep in mind that some interest-free loans charge fees, like origination or closing fees.
❗Nerdy Tip: Although some lenders offer legitimate interest-free business loans, predatory lenders may advertise “0% interest” to lure borrowers. You should always investigate 0% interest claims carefully and ask the lender to outline all the terms and conditions of the loan. Also research the lender and read any online reviews or complaints. If a business loan sounds too good to be true, it probably is, says Heidi Pickman, VP of external relations at CAMEO Network, a nonprofit organization that connects small-business owners with microlenders and other resources.
How do 0% interest business loans work?
Interest-free business loans work much like traditional business loans. You borrow a set amount of money and repay it over time.
The biggest difference is that you aren’t charged interest. Loan amounts are also smaller compared with many other loans. Interest-free business loans often cap out at $10,000 to $50,000.
These loans exist because a nonprofit provides the funding or a local government subsidizes the interest that you would otherwise have to pay.
Where to get a 0% interest business loan
It’s not easy finding an interest-free business loan. Availability often depends on where you live, and you’ll have to look beyond traditional lenders. Good places to start include:
- Nonprofit organizations.
- Community development financial institutions (CDFIs).
- Specific government programs.
Here are some specific options.
Kiva
Kiva is a nonprofit microlender that offers 0% interest crowdfunding loans up to $15,000. With Kiva, you:
- Submit an application and then invite friends and family members to lend to you.
- Expand your campaign onto the Kiva platform, where anyone can lend money to your business.
- Once your fundraising is complete, you receive your loan funds and have anywhere from 12 to 36 months to repay.
To qualify, you must be living in the U.S. (entrepreneurs in North Dakota and Nevada are not eligible) and be at least 18 years old. You must have a PayPal account and be willing to demonstrate what Kiva calls “your social capital.” In other words, you’re willing to ask friends, family and others to donate to your campaign.
Kiva does not have any minimum credit score requirements and doesn’t require collateral.
LiftFund
LiftFund is a nonprofit CDFI that operates in 15 states. LiftFund offers different types of SBA loans, but also partners with local governments to offer interest-free business loan programs.
As of this writing, LiftFund offers 0% interest loan programs for the following cities in Texas:
- Arlington.
- Austin.
- Fort Worth.
- Hondo.
- Irving.
- Lockhart.
- McAllen.
- San Angelo.
- San Antonio.
Maximum loan amounts, repayment terms and qualifications vary.
Jewish Free Loan Association (JFLA)
The JFLA is a nonprofit organization that offers interest- and fee-free loans to businesses in Southern California. And despite its name, the organization welcomes borrowers of all backgrounds. You don’t need to be affiliated with Judaism to qualify for financing.
Business loans are available up to $50,000 with repayment terms of 36 months.
To qualify, you need to:
- Live in Los Angeles, Orange, Santa Barbara or Ventura counties.
- Have a minimum credit score of 600 (680 for requests of more than $10,000).
- Show your ability to repay the loan and provide at least one guarantor. One guarantor is required for loan amounts up to $7,500, two are needed for loan amounts up to $36,000 and three are required for amounts up to $50,000.
Additional options
Additional local organizations or state governments may also offer interest-free business loans.
The Hebrew Free Loan Society, for example, issues 0% interest loans up to $60,000 to residents of New York City, Westchester County and Long Island. Similarly, the Hebrew Free Loan Association of Northeast Ohio provides interest-free business loans to residents of seven counties in Ohio.
Some state and local governments develop 0% or low-interest business loan programs in response to a disaster or other economic changes. The Florida Small Business Emergency Bridge Loan Program, for instance, offers 0% interest loans up to $50,000 to help businesses “bridge the gap” between the time a disaster hits and when longer-term funding is available.
How to find interest-free loans in your area
Your best bet is to search locally. Try searching online for phrases like, “0% interest business loans in [your city or state].”
You can also check government websites in your area, such as your local chamber of commerce or secretary of state, or your local small-business development center.
Pros and cons of interest-free business loans
Pros
No interest means more cash for business growth and expansion.
They’re typically offered by nonprofit and local lenders, which tend to have flexible credit and time in business requirements.
Some programs target specific demographics or needs, such as disaster or emergency funds.
Cons
Lenders may charge fees even if interest is waived.
Loan amounts are small, with most capped at $10,000 to $50,000.
There aren’t many options to choose from.
Existing options are often location-specific.
Alternatives to 0% interest business loans
If you can’t find an interest-free business loan in your area, consider these alternatives:
0% APR business credit cards
Intro APR
0% intro APR on Purchases for 12 monthsSome business credit cards offer an introductory 0% APR period, which typically ranges from six to 12 months or longer.
During this period, you can carry a balance on your card without incurring interest charges. You must pay off the card before the intro period ends or you’ll start accruing interest on your balance.
0% APR business credit cards can be a particularly good option for startups who want to finance their expenses while building cash flow. They can also be useful for making large purchases — as long as you can repay before the intro period is over.
SBA 7(a) loans
U.S. Small Business AdministrationSBA 7(a) loan
Min Credit
650SBA loans are partially guaranteed by the U.S. Small Business Administration and issued by lending partners like banks and credit unions. SBA loans are known for their low interest rates and long repayment terms.
The most popular SBA loan program, the 7(a) loan program can be used for a variety of purposes. Currently, interest rates range from 9.75% to 13.25%. To qualify for an SBA 7(a) loan, however, you’ll typically need good credit and multiple years in business.
SBA microloans
U.S. Small Business AdministrationSBA microloan
Min Credit
620If you can’t meet the 7(a) loan qualifications, SBA microloans are a little more flexible. Like many 0% interest business loans, SBA microloans are issued by nonprofit and community lenders. These loans are designed to help traditionally underserved businesses, such as startups and borrowers with lower credit scores.
Although interest rates are slightly higher than standard 7(a) loans — they usually range from 8% to 13% — SBA microloans are still a low-interest business loan option.
Small-business grants
If you’re concerned about taking on debt, small-business grants can be a good alternative. Small-business grants offer free money that doesn’t need to be repaid. You may be able to get a business grant from federal and state agencies, as well as private companies.
Applications for small-business grants are time-consuming and competitive. The time and effort, however, can be worth it if you’re approved.
Grants can be a particularly good option for businesses in certain industries, such as research, development and technology, as well as business owners in specific demographics, such as veterans, minority groups and women.
