Becoming your own boss - it’s the ultimate dream for many working Australians and one that tens of thousands take a chance on each year by starting up their own businesses. In fact, according to the latest figures from the Australian Bureau of Statistics (ABS) there were over 2.3 million actively trading businesses in Australia in 2018, with thousands of new businesses joining the ranks each year.
But as all business owners know, turning that dream into reality takes plenty of hard work and it’s not cheap. So what options do new businesses and startups have when it comes to acquiring funding, including taking out a business loan? Read on to find out.
What do new businesses and startups need funding for?
Whether you’re starting your own plumbing business or opening a cafe, there are plenty of start up costs that new businesses typically need to shell out for. Some are obvious, but others may come as a surprise to first time owners. They can include:
- Hiring staff
- Taking out insurance
- Purchasing stock, equipment or vehicles
- Marketing, advertising or market research costs
- Setting up services like phones, electricity and internet
- Obtaining any industry-specific licences or permits
- Paying rent and fitting out new spaces
- Setting up a website
Can new businesses take out business loans?
So, with all these costs to consider, how can you go about getting a business loan and why would you want one for your startup or new business?
Business loans can offer a fast, flexible funding solution to pay for a range of costs without dipping into your own funds or needing to take on additional business partners. And with more and more business loan options coming onto the market, Aussie businesses now have the choice of borrowing from established banks or from one of a host of new and upcoming online lenders.
However, there is a snag.
Many lenders require businesses to have been in operation for a certain period of time or to be making minimum yearly revenue before they will lend to them. This is because lenders want to know that your business is on sure footing and that you'll be able to pay off the loan as, unfortunately, many new businesses end up failing.
So what are the minimum requirements many lenders look for?
|Product||Minimum time trading (months)||Minimum yearly revenue ($)|
|Beyond Merchant Capital||Unsecured Business Loan||6||$60,000|
|Bromleigh||Small Business Loan||12||$40,000|
|Business Fuel||Business Loan||6||$120,000|
|businessloans.com.au||Flexible Business Loan||9||$120,000|
|Capify||Unsecured Small Business Loan||6||$120,000|
|Cigno Business Solutions||Business Loan||0||$10,000|
|GetCapital||Flexible Business Loan||9||$100,000|
|Lumi||Unsecured Business Loan||6||$50,000|
|Max Funding||Unsecured Business Loan||6||$72,000|
|OnDeck||Short Term Business Loan||12||$100,000|
As you can see in the table above, many of the online business lenders in the Mozo database require businesses to meet criteria such as having been trading for at least 6 to 12 months and having a minimum yearly revenue of anywhere between $50,000 - $120,000.
How do you apply for a business loan as a new business?
If you own a business in its infancy and you think you might meet the requirements to take out a business loan from a bank or an online lender, there are a few extra things you’ll want to think about before pulling the trigger and applying for a loan.
Can you afford one?
Ticking the boxes and meeting the requirements to take out a business loan is one thing, but will it actually fit into your budget? That’s why it makes sense to work out exactly how much you need to borrow and what you’ll be required to pay back. And if it doesn’t make sense financially, then it might be worthwhile considering one of the alternative funding options available to businesses further below.
What is the interest rate and what other features and costs are involved?
To work out if you’ll be able to meet the repayments on a business loan you’ll need to know the interest rate you’ll be paying. But unlike home loans or personal loans, business loan interest rates are a bit more complicated. Banks tend to offer interest rates which are calculated on a yearly basis, while many online lenders offer rates which are calculated on a monthly, weekly or even daily basis.
Some online lenders won’t even offer a rate until you actually apply as they offer personalised rates based on a business's individual circumstances.
It’s also worth comparing the other costs and features associated with each loan, such as application or set up fees which can often be in the hundreds of dollars, as well as whether the loan’s secured or unsecured, whether the rate is variable or fixed, and whether it comes with any other handy features such as free extra repayments or a redraw facility.
What do you need to apply?
Once you’ve compared a range of business loans and found one that you like the look of, it’s time to apply. The time it will take to complete an application and receive the funds in your bank account will vary from lender to lender, but some lenders make a point of offering applications that only take minutes to complete and funding within 24 hours of approval. When it comes to applying though, you may need some of the following:
- Proof of your financial position: This could include providing proof of cash flow, bank account statements, any assets you want to secure the loan with and tax records.
- Business and personal info: Lenders often ask for a phone number, email address, the name of your business and your ABN or ACN.
- A business plan: This could be particularly relevant for newer businesses applying for a loan, as some lenders require applicants to provide a business plan with details of how the loan will be used
For a more detailed run down, check out these handy business loan application tips.
Are there alternative funding options for new businesses and startups?
Business loan not the right option for you just yet? Don’t worry, because there are a number of alternative funding options available to new businesses and startups which you may be able to access.
Depending on your industry and location, your business may be eligible for a range of government grants, incentives and rebates. To see if your business may qualify, check out the Department of Industry, Innovation and Science’s handy search tool.
Business Credit Cards
For many new business owners, personal credit cards or business credit cards are popular choices for funding smaller and ongoing expenses. Of course, the amount you’ll be able to spend will depend on your card’s credit limit, so if you’re in need of a larger loan then a business loan may be a more suitable alternative.
Check out our business credit card guide for a more detailed overview of all the features, benefits and drawbacks you’ll want to know about.
Other Business Finance
Aside from standard business loans, there are also a number of other specific types of business finance available to businesses including business overdrafts, short term business loans, equipment financing and invoice financing.
So, are you ready to give your business a kickstart with the help of a business loan? Start comparing a range of offers with the help of Mozo’s business loan comparison page where you’ll be able to see the rates, fees, funding speed and a host of other features from different Australian lenders all in one place.