Getting Start Up Business Loans

Being able to become your own boss is a dream that a lot of hardworking Australians have. It is also one that a lot of Australians take a leap of faith on by starting their very own businesses. According to the statistics put out by the Australian Bureau of Statistics (ABS), there were a total of over 2.3 million businesses actively trading with thousands more joining in year on year. However, as a lot of business owners know, being able to turn that particular dream into a reality is easier said than done. After all, it requires a lot of hard work and it is certainly not cheap. Therefore, you might be wondering what options new Australian businesses have when it comes down to getting the financing and funding they need? Continue reading to find out more.

What Exactly Do New Businesses Need Funding For?

No matter if you are starting a plumbing company or opening a small cafe, you are going to have a lot of costs that you have to account for. While some of these costs are fairly obvious, some might sneak up on business owners by surprise. Some costs can include:

1. Hiring staff

2. Paying for business insurance

3. Purchasing inventory, vehicles and equipment

4. Advertising, marketing and other marketing costs

5. Utility services

6. Industry-specific permits

7. Paying for rent

8. Website costs

Can A Brand New Business Take Out A Business Loan? 

With all of the different costs, you must consider, you might be wondering how you can apply for a business loan and why you might actually want one. 

Business loans are something that can offer brand new businesses with a flexible and fast solution to pay for a variety of foundational start-up costs for businesses. Best of all, it can do so while providing you with the ability to avoid having to spend your own funds or needing to find business partners for financing or strictly financial reasons. With an increasing number of business loan options entering the marketplace, Australian businesses have the choice between getting loans from established banks or from a variety of different more flexible online lenders. 

That being said, there is a pitfall.

A lot of lenders will require that businesses be in operation for a set period of time or to bring in a certain level of revenue prior to them considering handing out a loan. After all, lenders want to ensure that your business is going to be worth the risk and that you will be able to pay off the loan in a timely manner. Unfortunately, they are well aware of the low success rate of new businesses.

How Do You Apply For A Loan As A New Business?

If you happen to own a business that is in its infancy stage and you believe that you are likely to meet the requirements that you need to get approved for a loan from a bank or lender, there are certain things that you should be thinking about prior to actually applying for one. 

What Do You Need To Apply?

As soon as you have compared a lot of different loan offers and found a suitable option, you will want to begin the application process. The total time it takes for you to complete an application and receive the funds that you are looking to get in your bank will ultimately vary depending on the lender in question. However, a few lenders will make it a strict point to offer quick applications that only take around a few minutes to complete and that get approved within 24 hours. That being said, when it comes to applying, you are likely to need some of the following things:

1.) Proof Of Your Financial Position

For one, you are likely to need to prove that your business is doing well. You will likely need to do this by providing proof of cash flow, statements from your bank accounts, and various assets that you are going to be using in order to secure the loan.

2.) Business and Personal Information

A lot of lenders will require that you provide your personal information including everything that could be used to identify you and your business including your phone number, email, your business’ name, and your ACN or ABN.

3.) A Laid-Out Business Plan

This is likely to be asked in the case of a brand new business applying for a loan. A lot of lenders are going to require that you present a viable business plan that details how the funding that you are applying for will be used.

Alternative Funding Options For Brand New Businesses?

If getting a business loan isn’t right for you right now for whatever reason, you might want to consider other options. There are a lot of different alternative options that you could potentially consider and that would be accessible for you.

Government Grants

This will primarily depend on your industry of operation and your location, but your business might be eligible for a variety of different government grants, rebates, and incentives. In order to check to see whether or not your business qualifies, you should be looking at the Department of Industry, Innovation, and Science’s effective search tool.

Credit Cards For Businesses

A lot of business owners might even want to leverage business credit cards. These are popular choices for business owners that have limited cash flow and that need extra financing. While the total amount you will be eligible to spend is going to vary based on your pre-determined limit. Therefore, if you need a lot, you might want to opt for a business loan anyways.

Check out our business credit card guide to getting even more details on the various features, benefits, and drawbacks that you might want to be aware of when shopping for one.

Friends And Family

Friends and Family should include those who love you and who share your blood. Fools are the ones who might not necessarily love you but you’ve been able to convince that you have the “next best thing.” These are people who aren’t professional investors and they will not be able to look at your business to effectively do the due diligence needed to make a solid investment decision. However, they will also have ridiculous expectations that are usually unrealistic by nature.

This is why you generally want to avoid mixing business with pleasure almost always. If you are going to be opting for this type of funding, at least hire a lawyer to protect yourself. It is a good idea hiring a lawyer that is experienced at handling venture deals. Likewise, getting the entire deal and arrangement in writing is the most basic prerequisite that you are going to want to do.

Equity Financing

This type of financing means you are raising capital through selling shares of your company. By selling equity, you are selling part ownership of the company to get the funding you need. While equity usually refers to companies that are traded publically on the stock market, when you are doing it as a start-up or brand new business, you are trading it between you and the investor. 

Unfortunately, equity deals can get extremely complex. They can also include not only the sale of the shares of the company, but also the various associated rights through different mechanisms including convertible preferred stock, common shares, warrant rights, and regular preferred stock.

Throughout this guide, we will be aiming to provide you with the basics and effectively guide you through the proper places to provide more knowledge. There is nothing more simple as it relates to equity financing for new businesses than understanding the basic fundamentals of funding rounds.

Angel Investors

Angel Investors are typically individuals that have a very high net worth. They are typically people who heavily invest in brand new businesses and startups in exchange for equity and/or convertible debt. The Angel can actually be from varied backgrounds but they are typically professional entrepreneurs or professionals who either retired or who are simply interested in the start-up scene. The risk these investors take on is typically very high. Because of this, they are typically looking to earn a good target return on their investment typically anywhere from 10x to 30x the return. Their investments are typically very early on in the company’s development and life cycle which means they have a very high chance of losing their entire investment. This is why relying on angel investors is usually going to be a very expensive type of capital to get. After all, these investors need to mitigate their risk and it is going to be reflected in the actual cost of the financing.

Alternative P2P Lenders

You might typically look straight at banks when you are trying to get a loan, a lot of the lenders in the SME space are offering something completely different. Alternative lenders have become highly sought after as they are covering the entire lending market. These lenders offer everything from unsecured to secured loans that can range from as little as a few thousand to a couple million. This brand new form of lender typically leverage the use of machine learning and different integrated APIs in order to get their data delivered right from the source and they typically have greater precision in their ability to profile their clients.

Equity Crowdfunding

This is the type of funding that is raised through many individual investors by selling sort of convertible notes in a company that isn’t publically listed. These investors are able to make a return on their investment if the company ends up being successful. However, they can also end up losing their money if it turns out to not be successful.

For a lot of companies, this type of crowdfunding is a good option to get more people interested in being investors for your company, but it can also help provide you with necessary feedback and a lot of individual advocates for your company to help boost your chances of succeeding. They will end up looking to do anything it takes to help you succeed which can boost your credibility. Different platforms like SyndicateRoom look to ensure pre-emption rights are offered as standard which helps individual initial investors to protect themselves from dilution by getting right of first refusal for shares that are available in secondary funding rounds.

Incubators and Accelerators

Both of these are options that you can consider. While the actual line between them might be relatively blurry, you can usually tell the difference by looking at the growth and the stage of the company in question. Usually, businesses in their infancy stages are going to be sought after by incubators and those in their adolescence stage will be sought after by accelerators. Each provides its own unique advantages including networking, mentoring, and even co-working space as standard. Usually, companies that partner with incubators don’t require a lot of capital. Whereas, those that are using accelerators are going to have very competitive application processes and they will require funding.