Business loans for startups: how to fund your new business

Becoming your own boss - it's the ultimate dream for many working Australians and one that thousands take a chance on each year by starting their own businesses. In fact, according to the latest figures from the Australian Bureau of Statistics (ABS), there were over 2.6 million actively trading businesses in Australia in 2024, with the number of new business entries increasing by 2.8% in the 2023-24 period. 

But as all business owners know, turning that dream into reality takes hard work and money. So what options do new businesses and start-ups have when it comes to acquiring funding? We’ll get into a range of options in this guide, but to start with let’s go over the costs.

Whether you're starting your own plumbing business or opening a cafe, there are plenty of start-up costs. Some are obvious, but others may come as a surprise to first time owners. They can include:

• Hiring staff and managing payroll systems
• Taking out insurance (including cyber 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 and digital presence
• Digital payment systems and point-of-sale equipment
• Cybersecurity measures
• Software subscriptions and digital tools
• Initial inventory and supplies.

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 the rise of fintech lenders and digital banking solutions, Australian businesses now have more options than ever, from traditional banks to online lenders and even specialised startup financing platforms.

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 safe footing and that you'll be able to pay off the loan. This is fair because, unfortunately, many new businesses end up failing.

So what are the minimum requirements many lenders look for in 2024?

*Note: Requirements and products may vary. Always check directly with lenders for current criteria.

If you own a business in its infancy and you think you might meet the requirements to take out a loan, there are a few extra things you'll want to think about before pulling the trigger and applying for a loan.

Can you afford a loan?

Ticking the boxes and meeting the requirements to take out a business loan is one thing, but will it actually fit into your budget? 

It makes sense to work out exactly how much you need to borrow and what you'll be required to pay back. This is particularly important in today's environment of higher interest rates and operating costs. 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.

1. 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, check the interest rate you'll be paying. Keep in mind, business loan interest rates can be a bit more complicated. Banks tend to offer interest rates which are calculated yearly, while many online lenders offer rates which are calculated on a monthly, weekly or even daily basis.

Some online lenders will only offer a rate once you actually apply as they offer personalised rates based on a business's individual circumstances and risk profile.

It's also worth comparing the other costs and features associated with each loan, such as:

• Application or set up fees
• Whether the loan's secured or unsecured
• Whether the rate is variable or fixed
• Any early repayment fees
• Flexible repayment options
• Integration with accounting software
• Digital banking features
• Mobile app accessibility
• Real-time reporting and analytics.

3. What do you need to apply?

Once you've compared a range of loans and found one that you like the look of, it's time to apply. Many digital lenders now offer rapid approval processes, with some providing funds within 24 hours of approval. When applying, you may need to provide:

• Proof of your financial position:
  • Bank account statements
  • Cash flow projections
  • Asset documentation
  • Tax records
  • Business activity statements (BAS)
  • Revenue forecasts
  • Current debt obligations
• Business and personal info:
  • Phone number and email address
  • Business name and structure
  • ABN or ACN
  • Director identification number
  • Digital identity verification
  • Credit history
• Business documentation:
  • Business plan
  • Industry certifications
  • Insurance documents
  • Lease agreements
  • Supplier contracts
  • Key partnership agreements

There are several alternative funding options available to new businesses and startups. Let’s take a look.

Government grants and support

The Australian government offers various grants and support programs through multiple channels. Check the Business.gov.au website for current opportunities, including:

• Entrepreneurs' Programme
• Export Market Development Grants
• Research and Development Tax Incentive
• State-specific business support programs
• Industry-specific innovation grants

Modern financing options

The financing landscape has evolved significantly with several new options now available:

• Buy Now Pay Later for business: Services like Zip Business and Afterpay for Business offer flexible payment terms for business purchases.
• Revenue-based financing: Lenders provide funding based on your revenue share rather than traditional loans.
• Crowdfunding: Platforms like Birchal and VentureCrowd for equity crowdfunding.
• Digital payment advances: Services such as Square and Stripe offer advances based on your payment processing history.
• Peer-to-Peer business lending: Platforms connecting businesses directly with investors.
• Subscription financing: Specialised funding for subscription-based businesses.

Traditional options

• Business credit cards: Useful for smaller expenses and building credit history.
• Equipment finance: Specific funding for business equipment and vehicles.
• Invoice financing: Get advance payments on outstanding invoices.
• Business overdrafts: Flexible credit line attached to your business account.
• Trade finance: Funding specifically for import/export businesses.

Current business environment considerations

When seeking business funding in today's environment, consider:

• Building strong digital capabilities
• Maintaining flexible working capital arrangements
• Diversifying revenue streams
• Implementing efficient inventory management
• Investing in automation and productivity tools
• Understanding and managing cybersecurity risks
• Developing sustainable business practices.

Where to compare

Ready to give your business a kickstart with the help of a business loan? Head over to our hub page and compare providers now.