If you’re starting a business and need a little extra help to get things moving, a business start-up loan could be ideal. Learn how to get a start-up business loan in Australia, as well as some of the alternative financing options that you may wish to pursue instead, with our simple guide.
What are start-up business loans?
Technically, there’s no such thing as a start-up loan for new businesses. It’s just a marketing term coined by lenders to attract new customers. However, you can use virtually any type of loan to start a business, so there’s no need to stress about not being able to receive investment. In most cases, new business loans will be “term loans,” which are lump sums you’ll pay back over a specific period. Alternatively, you may receive a line of credit, which is a set amount of money that you can draw upon when necessary.
What are business start-up loans for?
When you’re starting a business in Australia, there are a broad range of expenses that you’ll need to shell out for. These include the initial costs of registering the company and obtaining a business name, rent, salary, insurance, professional fees, as well as industry-specific permits or licenses. Cash flow is often irregular in the early days of starting a business, which is why small business start-up loans can help you shore up your accounts and ride out choppy financial waters.
What are the requirements of small business start-up loans?
Getting a new business loan may be difficult if you’ve just started your business. This is because you don’t have a track record of profitability that lets the bank know you’ll be able to make payments.
In many cases, the minimum trading time for eligibility in Australia is set anywhere between 6 to 24 months, although there are a couple of lenders that don’t require a minimum trading time. In addition, most lenders have a minimum yearly revenue that you’ll need to meet before you can access a start-up business loan. To secure a new business loan, you’ll probably also need the following:
Previous experience running a successful business
Strong credit history
Security (i.e. assets that can be used to secure the loan)
A significant amount of your own money already invested in the business
Without any of the above, it may be difficult to meet the requirements for a traditional bank loan.
Best way to get a business start-up loan
There are a couple of different ways that you can maximize your chances of getting a start-up business loan in Australia. When you’re applying for a loan, ensure that you do the following:
Present a business plan – After you work out exactly how much you need to build your company, show the bank a business plan that provides an explanation for how the business will succeed.
Explain how you intend to repay the loan – You’ll also need to present a budget that shows how you’ll be able to afford your loan repayments when you’re building the business.
Provide details of any security you may be able to provide – If you only need a loan for a small amount, you may be able to get an unsecured loan, but in most cases, you’ll need to secure the loan with personal assets, such as your home or a vehicle.
Alternative finance options for new businesses
If you can’t get a start-up business loan, don’t panic! There are a wide range of alternative financing options that you may wish to consider, including:
Crowdfunding – Funding your business through crowdfunding can be a great alternative to small business start-up loans, although you can’t expect the money to start flowing without a significant amount of work. It’s difficult to stand out from the crowd, so you’ll need to produce a solid hook that can help draw attention to your business’s crowdfunding effort.
Investors – Securing equity investment is another classic alternative to new business loans. There are many different types of investment that you may wish to pursue, including venture capital and private equity investment. While you’ll need to give up some degree of ownership, investors have the experience and networking connections to help new businesses thrive.
Friends and family – Of course, there’s always the option of getting financed via your friends and family. If you do take capital from your loved ones, make sure any agreements (such as stock issues or repayment schedules) are down in writing to avoid conflict further down the line.
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