Business borrowing guide stage 1: Loans for startups

Business borrowing guide 1

Find out about the loan options you have to finance your startup.

If you have an idea and are planning to open a company, you will likely be looking for sources of finance to get your startup off the ground. A startup loan can come in many forms and from a range of financiers, any of which might be the right option for you. The guide below will take you through all of these loan types to help you narrow down your search.

What is a "startup" business?

Startups are newly emerged, fast-growing businesses that are in the process of developing their product or service. These companies can be sole traders, partnerships or organisations which have a model that can be rapidly scaled. Startups are marked by change, in terms of product, model or staffing. A startup isn't a business, technically, but it is in a stage of developing into a business.

Common funding needs that startups have

Startups can be marked by high periods of growth, but they also have funding needs.

  • To develop the product/service. This is one of the most common funding needs for startups. Developing the initial business idea into a market-ready product or service is a costly exercise and is completed in a period where the startup cannot make money (yet).
  • For operational expenses. Startups often need to hire staff, lease business space and pay the salaries of staff and founders. This requires funds, and the larger the business and the more staff that are hired, the more funds the startup will need.
  • To market the product. Acquiring customers is a common startup hurdle, and this can only be done through marketing. Whether's it's online, through social media or using an old-school letter drop, these activities need time and money.
  • To expand the business. This is a positive step forward for any startup – expanding the business. Due to the uncertain cash flow in startups, it's common to use external funds to expand.

What types of finance are available to startups?

Startups have no to little internal funds – that is, profit. Because of this, these companies have the choice between two types of finance: debt or equity. Debt finance involves borrowing the money, so the business takes on a debt, whereas equity finance involves the business acquiring funds from investors or a public float in return for a share of the company.

Here are some options startups have when it comes to debt and equity finance.

Debt financeEquity finance
  • Loans from traditional lenders

Banks and credit unions offer loans to people looking to start small businesses. The application process usually requires detailed business plans and you may need to put up security.

  • Angel investors

These are individual investors who help to finance your startup, usually in exchange for a partnership stake. You can find these individuals yourself or through startup hubs, meetups or investment groups.

  • Loans from online and alternative business lenders

The number of online and other alternative business lenders has increased in the last few years. You can apply for business loans online and receive funding quickly, sometimes within 24 hours.

  • Venture capitalists

This is a specific type of equity capital which involves individuals or venture capital firms providing funds for startups and early stage businesses. Your business needs to demonstrate potential revenue and a solid business strategy.

  • Credit cards

If you only need a small loan or require access to an ongoing line of credit, a credit card may be an option to consider. You can opt for a card that gives you 0% p.a. on purchases for up to 12 months.

  • Public float

This involves you listing your company on the stock exchange so people can purchase shares. Keep in mind doing this will involve a higher degree of transparency with your business than if you remain a private company.

Startup meeting table

How can I compare startup loans?

Finding the right finance for your new company is important, and it all starts with comparing your options. Here are a few points to keep in mind:

  • How much do I need to borrow?
    You will be offered a loan that is based on the details you provide in your application. However, you may be able to see the minimum and maximum amounts on offer depending on the lender. This is more likely with online and alternative lenders and also with credit cards.
  • How long do I need to repay the loan?
    It may be difficult to determine how much you’ll be able to repay if your business isn’t off the ground yet, which is where having a sound business plan comes into play. Work out an approximate budget and don’t apply for a loan you can’t afford.
  • Do I need access to ongoing credit or a lump sum amount?
    Will you need continued access to finance? Consider whether an ongoing line of credit or a loan that offers a redraw may be a better option for you. Remember to take your repayments into account when budgeting your startup financials if you opt for the lump sum loan.

How long does my business need to be in operation for a startup loan?

These are the criteria for lenders featured on in regards to how long your business needs to have been in operation:

Business lenderHow long you need to have been operatingRevenue criteriaFind out more
Banjo Loans2 years$500,000 per yearMore
BigstoneNo minimum$250,000 per yearMore
Business Fuel1 year$10,000 per monthMore
Capify6 months$10,000 per monthMore
GetCapital9 months$10,000 per monthMore
Kikka1 year$10,000 per monthMore
NAB12 monthsNo minimumMore
Max FundingNo minimumNo minimumMore
Merchant Cash12 months$5,000 per monthMore
MiFananceNo minimumNo minimumMore
Moula12 months$5,000 per monthMore
OnDeck12 months$100,000 per yearMore
ProspaNo minimumNo minimumMore
Spotcap12 months$100,000 per yearMore
ThinCatsNo minimumNo minimumMore

What regulations should I be aware of?

The startup sector is becoming more regulated as time goes on, making it easier for people to turn ideas into companies and for startup founders to access finance. The largest regulatory changes were announced in the Federal Government’s innovation agenda, which detailed various changes to be rolled out in 2016 and beyond. Notable funding-related regulations include:

  • From 1 July 2016 investors who support innovative startups will receive a 20% non-refundable tax offset on investments capped at $200,000 per year, per investor.
  • From 1 July 2016 investors who support innovative startups will receive a 10-year capital gains tax exemption for investments held for three years.
  • Already in place are changes to crowdsourced equity funding (CSEF) schemes to allow entrepreneurs to raise up to $5 million per year in funds from a large number of individuals in return for equity in their company.
  • Companies that went public to access CSEF have a five-year exemption from normal reporting and exemption requirements.
  • From 1 July 2016 partners in a new Early Stage Venture Capital Limited Partnership (ESVCLP) will receive a 10% non-refundable tax offset on capital invested during the year. Funding size will also be increased from $100 million to $200 million.

Frequently asked questions

Do I need to provide security?

This depends on the lender you apply with, but generally it’s up to you whether or not you want to offer a guarantee. Doing so can help lower your repayments but it also puts the asset at risk should you default on the loan.

What do I need to apply?

If you apply with a bank you will need a detailed business plan as well as your own personal information. Online business lenders usually list the application requirements on their website, and you can also find details on review pages.

What interest rate will I receive?

You’ll be offered a rate based on the details you provide in your loan application. Some lenders may offer you a rate estimate before you submit a full application.

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2 Responses to Business borrowing guide stage 1: Loans for startups

  1. Default Gravatar
    Bernard | January 24, 2017


    I am looking to be put in touch with lenders that can help me with finance to purchase an existing business.

    Any details will be very helpful thank you.

    • Staff
      Anndy | January 24, 2017

      Hi Bernard,

      Thanks for your question.

      If you are looking to purchase an existing business, the lenders on this page may help with your borrowing needs.


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