How do I apply for a start-up loan?
Looking to get a start-up loan in Australia is common during the inception of any business. Even if you are adapting a simple business model, money is a prerequisite from the get go. Investing in the lifecycle of your product or service is crucial while emerging and growing into a business.
As a start-up, you must plan any investment deliberately and strictly control your costs. You have to determine your funding needs and create a budget. The following is a list of possible funding needs where you can allocate budget from your start-up loan.
The benefits of applying for a start-up loan for your business
Product / Service Development
Building up a business idea into a market-ready product or service is a costly exercise. The process of meeting the design, resource and manufacturing requirements is usually completed before earning your profit.
Testing lots of ideas at the start of a project costs a lot. However, this is essential to assess which of these ideas are most promising and which don’t meet your criteria. You must review your project at the end of each development stage to avoid wasting resources from your start-up loan.
Operating expenses are the costs required to keep the business going from day to day. Part of the budget from your start-up loan can be allocated to these expenses, such as rent, equipment, inventory costs, payroll, employee benefits and pension contributions, transportation and travel, and taxes. More funds will be needed as your business gets larger and the number of your staff increases.
You have to anticipate that you will spend heavily on marketing as you launch the product or service. Marketing activities, whether it’s traditional or digital, need time and money.
Traditional marketing can come in the form of print ads, billboards, and commercials on TV and radio. On the other hand, having a website and building a brand through social media are strategies in digital marketing.
Investing a part of your start-up loan in brand building translates to a better reputation in the market and a differentiation among your competitors.
You may want to target different markets, develop a new product, open in another location, or franchise your business. Depending on the size of your expansion, both your fixed and variable costs are likely to be higher. You can discuss your plans with your lender and try to secure a start-up loan in Australia. Take time to optimise your cash flow and tighten up your credit control and spending in preparation for the expansion.
It happens that a start-up may find it difficult to get a small business loan. Most lenders approve loan application from start-ups with at least 6 months of trading history and evidence that your business idea is a money-spinner.
You will also need to be mindful of how you will cover your loan repayments until your business takes off. To qualify for a start-up loan, especially with a bank, you will have to prove that you have enough income to meet your obligations — which means you will need a steady source of revenue.
Here are some options start-ups have when it comes to business financial solutions.
- Traditional Lenders
- Banks and credit unions offer loans to individuals looking to start small businesses. Detailed business plans and putting up security are the most common requirements in the application process.
- Online & Alternative Lenders
- You can apply for business loans online and receive a quick start-up loan, sometimes within 24 hours.
- Credit Cards
- A credit card may be an option if you only need a small loan or require access to an ongoing line of credit. Credit card is an easy way to access cash, with premium just payable on the drawn balance. Numerous facilities offer 0% interest introductory rates so it can be a cheap way to finance early expenses, provided that you repay the balance quickly.
- Angel Investors
- Angel investors usually help to finance a start-up in exchange for a partnership stake. You can find them through start-up hubs, meet-ups or investment groups.
- Venture Capital
- Venture capital trusts are managed funds where investors pool their resources, with a professional fund manager making the decisions about where to invest. Each fund will have a particular focus and rules about the kinds of businesses they will fund.
- Home Equity Loan
- Use the equity you have built up in your house to get a start-up loan with a long repayment period. This is potentially a more substantial sum than you could raise from an investor or lender. Remember that interest rates can go up, impacting your repayment costs. You may be locked into the loan, paying interest, even if you no longer need it. Some mortgages have penalties for early repayments.
Finding the right loan for your start-up is very important. Make sure to take your reimbursements into account when budgeting your start-up loan. It might be hard to determine the amount you’ll be able to repay if your business isn’t off the ground yet. Work out an approximate budget and do not apply for a loan you cannot afford.