An Introduction To Startup Business Loans

startup business loans

If you have a business idea and plan to start a company, then you will most likely be searching for financing options to get your startup launched. There are many different forms that a startup loan may come in. In this guide, we will be discussing the financing options available for startups to help you narrow your search down and find the best business loan for you.


3 Most Important Things That You Need To Be Aware Of About Startup Loans

1. What is a “startup”?

Firstly, what is startup? A startup is a new, rapidly-growing business that is still in the process of developing its service or product. This type of company can be an organisation, partnership, or sole trader which all have models that may be scaled rapidly. A startup is not technically a business, but is a stage of development for a business.

2. Common funding needs of startups

Funding for development. Startups may have high growth periods, but still require funding. For example, this could be for developing a new service or product. This is one of the more common needs that startups have for funding. It can be expensive to develop an initial business into a service or product that is ready for the market and is done during the time when startups haven’t made any money yet.

Funding for operational expenses. Just like any business, startups need to pay the salaries of founders and staff, leasing/rental of business space, and for hiring staff. The more staff that is hired and the bigger the business is, the more funds that will be needed by the startup.

Marketing a product. Trying to obtain customers can be quite challenging for a startup, and it can only be achieved through effective marketing. Whether it is through the use of social media, online marketing or old-fashioned letter drop, those activities cost money and time.

3. To expand a business

For any startup, it is a positive step in the right direction to expand the business. External funds are often needed to expand due to the startup having irregular cash flow.

RELATED: How To Apply And Qualify For A Business Loan


What kinds of financing are available for startups?

Startup Loans

Startups have little to no internal funds – or profit in other words. As a result, there are only two major types of financing that are available to them: equity financing or debt financing. With debt financing, money is borrowed and the business takes debt on. With equity financing, the business obtains funds from a public float or from investors in return for shares in the company.

The following are some of the equity and debt finance options that are available to startups.

Debt financing:

Loan from a traditional lender

Credit unions and banks offer loans to individuals wanting to start a small business. Usually the application process requires a detailed business plan and you might need to put up security as well.

Loan from an alternative or online business lender

Over the last couple of years, the number of alternative and online business lenders has continued to increase. It is now possible to apply online for a business loan and to receive funding very fast, sometimes within a 24 hour period.

Credit cards

If all you need is access to a line of credit or small loan then you might want to consider applying for a credit card. You can choose to apply for a card that provides you with 0% p.a. for up to 12 months on purchases.

Equity financing:

Angel investors

They are individuals who provide your startup with financing, usually in exchange for receiving a partnership stake in your company. These individuals can be found in investment groups, meetups, startup hubs, or through your own research.

Venture capitalists

This specific kind of equity capital involves venture capital firms or individuals who provide the funds for early stage businesses and startups. Your business must demonstrate a solid business strategy and potential revenue.

Public float

You obtain this type of financing by listing your business on the stock exchange so that individuals can buy shares. Remember that this will require you to have a high level of transparency for your business compared to if you were to remain being a private company.


How can startup loans be compared?

It is very important to find the right type of finance for your startup. It all begins by comparing the various options that are available to you. Here are a few important things to consider:

How much money do I need to borrow?

The loans that you will be offered will be based on the specific details that you provide on your loan application. However, you might be able to know what the minimum and maximum amounts are being offered by the lender. That is more likely with credit cards as well as alternative and online lenders.

How long will I have to repay my loan?

If your business still hasn’t gotten off the ground, then it can be hard to know how much you will be able to afford to repay on your loan. This is where a sound business plan can help. Work out an approximately budget and don’t apply for any loans you are unable to afford.

Will I need access to a lump sum amount or ongoing credit?

Are you going to need to have continuous access to financing? Determine whether having a loan with a redraw or an ongoing credit line is the best option for you. Make sure your repayments are taken into account when making a budget for your startup financial if you decide to go with the lump sum loan.

LoanOne is one of the fastest growing financial companies in Australia. We offer business loans for startups with competitive rates for different industries. Our loans are fast, flexible and can be tailored to both your personal or business needs. Click here to apply now!