When starting a business, costs can mount up quickly. From hiring staff to purchasing equipment and fitting out premises, financial constraints have stopped many a great idea from taking flight. Whilst it can be difficult for early-stage companies to qualify for loans available to more established businesses, there are various ways of obtaining funding and raising money to get your project off the ground.

In Australia, there are approximately 2.3m actively trading businesses, most of which are small businesses. Each year around 250,000 are launched. 70% reported that they have access to funding of some sort, although overdrafts and credit cards make up a lot of this and only 15% have a term loan. For startups, this number is a lot lower as getting a loan as a new business isn’t easy. However, investment in small business in Australia is booming, almost doubling to $7bn from 2018 to 2019.

Why finance is essential for early-stage companies?

One of the biggest hurdles a small company can face is getting access to the capital needed to turn a business idea into reality. A startup loan means that business owners don’t need to gamble their own funds and assets on a venture, but getting approval comes with a set of challenges that can be difficult to overcome. Lenders will like to see that a business has been trading for a given period of time and is bringing in some revenue. Since many startups fail, they need to know that they stand a good chance of getting their money back.

Costs add up quickly for startups. Before doing any business at all, some or all of the following costs may need to be covered:

  • Staff costs - not just wages, but also costs associated with hiring and training
  • Rent & fit-out of business premises
  • Stock and equipment, such as machinery or vehicles
  • Phone, electricity, internet
  • Marketing and website
  • Insurance, licenses and permits

How to get a loan

For a typical small business loan, banks like to see a company's trading records and financial and credit history. Given that a new business won’t have these, a lender will often ask the following. Without at least a couple of these, a loan could be impossible:

  • Experience running a business
  • Assets that could be used as security
  • A good credit rating
  • They also like to see that you’ve invested your own money. Why should they back your idea if you’re not willing to do the same?

What to consider when preparing a loan application?

Think about why you need a loan

  • What do you need it for? Are there other options you can explore first, like using your own money or borrowing from friends and family?
  • How much do you need? More importantly, how much can you afford to pay back?

Understand what you’re looking for

  • What kind of loan do you want? What kind of loan can you get?
  • Secured or unsecured? Do you have any assets to use as security?
  • What are the rates, fees and charges? Is it fixed or variable?
  • Is there a redraw facility or can you make free extra repayments?

Do your research

  • Once you’ve decided what kind of loan you’re looking for, shop around. If a traditional bank isn’t an option for you, consider a non-bank lender. You may be able to get funds there without security. They also have less stringent criteria for approvals and funds can be available quickly.
  • If you’ve been trading for a little while, you may be eligible for other types of funding, including invoice finance.

Be prepared

  • You’ll need to show them a budget. It should detail expected revenue and cash flow, how you’ll use the funds and most importantly your ability to repay.
  • Get together your financial records. Personal financial statements, tax records and anything relating to the business’ trading history so far.
  • Prepare a business plan, explaining your proposition in detail with how you intend to make it a success, along with financial forecasts and revenue projections.

Funding options for startups

The first thing to say is that there is no such thing as a startup business loan. There are types of loans which are out of reach for new businesses, which means that there are other kinds which are potentially attainable. Secured loan

A term loan secured against fixed assets. Generally business collateral, however a startup with fixed assets is unusual, so more likely this will be personal assets, such as a home or vehicle. A risky route to go down, if the business fails (which many do) then you stand to lose your home or your car.

Professional investors

Angel investors and venture capital funds make their money by investing in early-stage businesses in exchange for equity. An angel investor is an individual whilst venture capital is a firm specialising in making investments.

Bootstrapping (and sweat equity)

Usually the first option for early-stage companies. Bootstrapping often means holding down a 9-5 day job and working on your business in your spare time, until it becomes financially viable to do it full-time. Funds come from the pockets of the founders.

Sweat equity is related - as a startup, you’ll often need to hire people with skills that you don’t have, but you have no way to pay them (or not what they’re worth in the real world). You offer them a stake in the business to take a lower (or no) salary in return for their expertise.

Friends and family

A common practice for startup businesses. Lower interest rates, flexibility and leniency and little or no eligibility criteria, but fraught with risk. Extremely important to do things professionally and get everything in writing should things not work out as planned.

Personal loan

If you can’t get a business loan, you could always consider a personal loan. If you have a decent personal credit history, an unsecured loan is relatively easy to obtain. Although the amount will be small, it could be enough to tide the business over.


A modern way of funding a business. Pitching your idea to the general public on a crowdfunding platform and asking for small donations to help you achieve your goal. In return, you give them early access to your product or service or even exclusive money can’t buy offers. Or equity crowdfunding, where you sell shares in your startup to the general public in return for funds upfront.

It involves a platform operate, who take a share. They usually operate an all or nothing model, where if a set funding goal is not met all funds are returned to investors.

P2P (or peer to peer lending)

Investors or groups of investors are matched up with businesses (or individuals) looking for a loan. P2P funding is facilitated by platform operators, who act as intermediaries. It’s a quicker and easier way to obtain funding, although credit checks are still required as is a convincing pitch to get investors to believe in your business.

Credit card

A personal or business credit card could be used to cover short term expenses. It is possible to take advantage of interest-free periods by switching cards, although the exceptionally high interest rates make this a risky option.

Home loan equity

Another risky (and unrecommended) option if you’re a homeowner is to use the equity in your home to fund your business.To qualify you’ll need to prove to your mortgage provider that your business idea is viable and you can make the extra repayments. Failing to do so could mean you lose your house - and it is a long term loan with often no option for early repayment.


A nest egg could be used to fund a business venture, although this comes with considerable risks as startup costs can quickly mount up. Despite this, if you can afford to fund the business yourself it would mean no loan repayments and freedom in how you spend the money, as well built-in prudence since you’re dealing with your own money.


Depending on the industry you’re in you may be eligible for some help from the government in the form of a grant. It’s a long and complicated application process with no guarantee of success, but it can include matched funds of up to $1m (matched by you) as well as expert advice, mentoring and event placement in a startup incubator.

Pros and cons of startup funding

Type of fundingProCon
Secured loanOften the only way for a startup to get funding from a bankVery risky. Without business assets, personal property would have to put on the line.
Professional investorsA way to bring in funds without the need for loan repayments. Professional investors bring with them experience, expertise and contacts.It takes hard work, a confident pitch and a strong idea to secure investment. You give up not only a share of your business but a say in how the business is run and it’s future direction and vision.
BootstrappingNo loan to repay. As it’s your money, likely to be more careful about how you spend it.There is a limit to how far you can take the business with bootstrapping alone, at some point funds will need to be acquired externally. It’s also exhausting - working 9-5 and then evenings and weekends.
Sweat equityCan hire experts at a fraction of the cost. Their hard work determines the success of the business, so they should be highly committedHow much equity do you give them? Do you pay them any salary? Can be hard to solve disputes if they don’t share goals.
Friends and familyIt’s there if you can’t get a bank loan. No needs for approvals, flexibility in terms of repayments and low-interest ratesPotentially relationship damaging. Contracts must be drawn up before funds are handed over. Contingencies must be planned for.
CrowdfundingRelatively risk-free way to raise money, no-one contributes too muchVery difficult. Needs a great pitch and buy-in from complete strangers. No guarantee of success.
Personal LoanIf a business loan is unavailable, it should be relatively to easy to obtain an unsecured personal loan with a decent credit recordLoan amounts will be small
P2PA quicker and easier way to get funds. A way to get approved if you’re ineligible for a loan from a bankRequires a convincing pitch. Not available to everyone and still requires credit checks. Unlike VC, no direct contact with investors so cannot use their expertise
Credit cardsA flexible form of funding. Relatively easy to get one.Very high interest rates that can spiral out of control quite easily. A risky form of funding
Home loan equityPotential access to a large sum of moneyNeed to prove to the lender that you can make repayments with the business. Long term repayments (probably beyond the use for the funds). Can lose your home
SavingsNo loan repayments or interest. Autonomy and freedom in how you spend the moneyIt’s quite easy to lose your nest egg pursuing your dream
Government grantsSupport, mentoring and incubator services. Access to matched funds (meaning you’ll still need to raise whatever you want to receive)Not available to all businesses. Hard work with a complicated application process and no guarantee of success
Russ Watts

Digi Marketer, responsible for spreading the Waddle word far and wide. Writes the blogs, manages the ads & comes up with ways of making invoice finance sound exciting.

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