Small Business Start-up Loans

Can I get a small loan to help with my startup business? What will help me get approved? Find out how to select and compare startup business loans here.

Start-up business loans explained

Getting a startup business off the ground is no easy feat, so many business owners will want to look for a helping hand. Is it possible to get a small business loan to help get your startup running, though? What can you do to help get your application approved and are there choices to compare? Learn about loan options for starting up a business in this handy guide.

How do I get a loan for a small startup business?

The good news is that, in Australia, we have a wide variety of lenders available, with many different loans suitable for small businesses that are still getting started. So, although starting a new business can be a difficult process, it’s not impossible to get finance to help the process along.

Many lenders offer specialised startup loans, which can be a great option for a brand-new business without any financial track record to speak of. These often involve using your personal assets as either a deposit or security for the loan and the applications focus more on your business plan than on your business’ past financial history.

Startup loans aren’t the only options to compare of course, but they’re an important one. More conventional business loans can be a possibility for a startup, but they often have minimum criteria in terms of how long you must have been in business and minimum cash turnover – they might require around six months for minimum time in business and a minimum revenue of $10,000 per month, for example. As such, they’re better suited to a business that has been trading for a year or two than one in the process of setting up. Not every business loan has these restrictions but, when you’re starting out, it does mean less options on the table to compare.

What's the advantage of getting a loan for a startup business, compared to other forms of finance?

The main advantage of financing your business through a loan is equity, which is the ownership and control you have over the business. The idea of equity funding – getting an investor or group to provide the finances for your startup business – is obviously appealing, but it’s worth remembering that if someone else invests in your business, that generally gives them a share in it. This means they’re likely to receive a portion of the profits and potentially have some say in how the business runs.

By contrast, funding your startup with a business loan means you retain ownership – you keep control of the business and you get the profits.

It’s not uncommon for startup owners to use a mix of methods to finance their business – so someone might provide 70% of the funds from personal funds and a business loan, and get an investor to contribute the remaining 30% (giving them a share of the company). The more of your business you finance yourself, the more you stand to benefit.

It is also possible to use credit for short-term business funding, and there are business credit cards that offer interest free terms for the first 12-18 months. These aren’t always a great solution, though. Firstly, if you don’t settle the debt within that initial time frame, you’ll be charged very high interest. Also, making heavy use of your available credit isn’t great for your business’ credit rating. Finally, not every expense is covered by the initial 0% interest rate (cash advances are generally excluded) and it’s easy to find yourself in significant debt if you’re not watching your card statements closely.

How to maximise your approval chances for a start-up business loan?

Know your market

Having done your homework on the kind of business you’re moving into as a must. For preference, having a few years’ experience working in that industry – especially in a similar type of business – will strengthen your application.

Have a good business plan

You need to show your lender that you’ve thought through the process of setting this business up, which is where the business plan comes in. The more comprehensive and thorough, the better. This is a good place to show how well you know the industry, as well

Offer collateral or a deposit

Having assets or finances of your own to contribute is always going to strengthen your position; some lenders will regard it as essential.

Consider a guarantor

If you have a supportive friend or family member in a strong financial position but don’t want them as an investor, you could consider asking them to go guarantor on a loan. This involves them vouching for you and committing to picking up the bill if your business fails, which increases your chances of approval, increases your borrowing power and lowers your interest rate too.

Frequently asked questions about small business startup loans

Am I better off going with a bank or a smaller lender when applying for a small startup business loan?

As a rule, smaller online businesses tend to be more approachable for small businesses without many assets compared to big banks. So when you’re starting a new business, your chances of loan approval are probably a lot better if you start there. Savvy’s a good place to begin the hunt, allowing you to view and compare small business loans from a range of online lenders and find one suitable for your situation.

Is there a downside of offering collateral on small business startup loans?

Yes – in the process of securing a loan, you lose some control of the chosen asset. A property used as loan security can’t be sold or replaced, and can’t substantially modified without permission. There’s also the background risk that if your business fails and you can’t recover your costs, you could lose your asset. If you have an asset to offer as collateral, it can certainly help your application to offer it, as well as the terms you can get on a business loan, but it’s important to be careful.

Will a small startup business loan have a low interest rate?

Not generally. Startups are a bit of a risk as far as lenders are concerned and, in the lending world, more risk means higher interest rates. However, it’s worth remembering that a secured loan – with an asset offered as collateral – will generally have a much better interest rate compared to an unsecured one.

Is there any government support for getting a small startup business off the ground?

There is a program called the New Enterprise Incentive Scheme (or NEIS) which provides government support to new businesses, although there’s only around 6,300 places available each year. There are also various grants available that can help eligible small businesses.

Will my business's credit score affect my loan application?

Yes – more accurately, at this point, your business won’t actually have much of a credit score (as is doesn’t have much credit history yet), which can be a problem for getting a business loan. This generally means your personal credit (and that of other directors in your business) will play a much more significant role. Startup loans generally already account for these factors in the way they’re set up.

How much could I get from a loan for a small startup business?

It’s technically possible to get up to $100,000 as a loan for a startup company. In practice, though, you probably shouldn’t count on a loan that large. The actual figure a lender might offer you will depend on a variety of factors, including what collateral you have on offer (if any), the kind of business you’re starting, how you’re contributing out of your own pocket and your personal credit history.