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Loans for startups

Find out your startup finance options and compare loans now.

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If you have an idea for a business, it’s likely you’ll need finance to help get it off the ground.

As a startup, you’ll have a number of finance options, so it’s important to choose the one that is right for your business. Read on to find out what you need to know about startup loans.

What is a “startup” business?

Startups are newly-formed, fast-growing businesses that are in the process of developing their product or service. These companies can be sole traders, partnerships or organisations with a model that can be rapidly scaled. Startups are often marked by change in terms of product, model or staffing, and they face high uncertainty.

Despite some similarities, a startup is different to a small business and is designed for rapid growth, as opposed to the steady growth targeted by small businesses.

Common funding needs for startups

Startups often have rapid early growth, but they also have the same financing needs as other businesses. This includes funding:

  • 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 expensive, and generally happens at a time when the business has no revenue.
  • For operational expenses. Startups often need to hire staff, lease business space such as coworking 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 marketing is generally your best option. Whether 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 little to no internal funds – that is, profit. Because of this, these companies have a choice between two types of finance: debt or equity. Debt finance involves borrowing money, so the business takes on 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 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 that 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% interest p.a. on purchases for up to 12 months.

  • Public float

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

businesss-startup-meeting

How to 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 you need to borrow?
    You will be offered a loan that is based on the details that 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 you 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 you 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 a lump sum loan.

What if I own an early stage business?

An early stage business is generally one in its first year of operation, but has progressed past the initial startup phase.

However, early stage businesses face similar issues to startups when it comes to getting finance. If you don’t meet the minimum turnover and trading history requirements of a particular lender you are unlikely to be approved for a loan, regardless of how promising your business is.

You should instead consider finance from lenders with no minimum business requirements, or look into alternative finance options, such as invoice finance or a business line of credit.

For information on what small business support may be available during the coronavirus outbreak, visit the government’s website.

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 Finder’s individual 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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