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How To Get A Start Up Loan

Do you need money to get a business idea off the paper and into reality? Then you probably need a startup loan. But do they even exist? We answer your big questions about loans for new businesses.


Startup loan or loan to startup?

The bad news is there's really no such thing as a startup loan. The good news is that almost anything can be a startup loan. Confused? Don’t be. ‘Startup loan’ is just a name. It’s bank marketing. You could use any type of loan to start a business.


Bank loans for business

In reality, a startup loan will probably be a term loan or, in rare cases, a line of credit.

  • A term loan is a lump sum that you pay back over a set period of time. You’ll pay interest on the money borrowed, at a fixed or variable rate. If you’re able to provide security, you’ll probably be offered a lower interest rate.

  • A line of credit is a set amount that you can draw on when needed. It works like a credit card but has a lower interest rate. These are more commonly given to existing businesses with a track record of earning money.


Loan requirements

If you’re a startup business, getting a term loan or line of credit can be difficult. You generally won’t have any track record to show the bank you’re profitable and can make repayments.

Banks and financial institutions are more likely to lend to a startup if they can see you have:

  • some previous experience with a successful business

  • invested a large chunk of your own money

  • security

  • good credit history

Without at least one of the above, you might find it hard to get money through a traditional bank loan.


How to get a startup business loan

You can increase your chances of getting a loan by following these steps:

  1. Get your financial requirements and business plan together. Figure out how much you need to build the business and run it in the early days (before revenue starts to flow). Show the bank a business plan that demonstrates how your business will succeed. Be sure to acknowledge the risks along the way.

  2. Show them how you intend to repay the loan. Include a budget showing how you’ll afford repayments and when. That’s really the most important thing they want to see. They want their money back – with interest.

  3. Let them know if you have any security. Your home, vehicle or other personal assets could be used as security. You might be able to get an unsecured loan if you’re only looking to borrow a small amount.


Alternative startup financing

If the banks aren’t interested in your brilliant plan, there are other options for finance:

  • Investors might be a useful source of finance. You’ll have to give up a share of your business but in exchange, you may get a business partner and mentor with valuable experience and knowledge. And further down the track, you could buy back their share.

  • Friends and family can be a source of funds – either as investors or lenders. If you choose this route, get things in writing to protect your relationships.

  • Crowdfunding is another finance option. It can take a lot of work to put together your pitch and your idea really needs to stand out to get traction.

  • Peer-to-peer (P2P) lending lets you borrow from one or more strangers. You won’t get as large an amount without security.

  • Bootstrapping is the do-it-yourself method. You use your savings, personal credit cards, personal loans, or maybe refinance your home. It’s risky – if your business fails you can devastate your personal finances.


Have questions? Want to know how to start? Then give us a buzz.

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