Running a startup certainly isn’t easy, but thankfully there is plenty of support for new Australian businesses. Last year, almost $700 million was invested in Australian startups throughout 2017, a figure that’s up 1.4% from the year before.
With more and more startups launching every day, competition is high, so how can you get ahead? Today, we’ll be telling you everything you need to know about new business finance, including business startup loans.
Firstly, What is a Startup Business?
The term ‘startup’ has become a widely-used phrase of late, but what exactly does it mean? A startup can simply be referred to as “a newly emerged business venture that aims to develop a viable business model to meet a marketplace need or problem”.
Often, in the very early stages, a startup will be self-funded. As their product or service develops, 66% of startups then choose to secure funding through a small business loan or investor.
Startups versus Small Businesses: What’s the Difference?
One of the main differences between a startup and a small business is growth. While a small business might be very happy to stay small and not scale or expand, a startup’s primary goal is to grow, and to do so rather quickly.
Startups tend to have a lot more experimentation involved than small businesses too. According to Xiao Wang, the Co-Founder and CEO of Boundless, “[a startup] does not yet know how it will operate at scale, both to its customers and its employees. The focus is on experimentation — continuously testing, iterating, and learning.”
The Different Types of Startup Business Loans
Just some of the most common business loans a startup may be eligible for include:
- Unsecured business loans
- Secured business loans
- Short-term business loans
- Long-term business loans
- Business line of credit
- Invoice financing
- Business credit card
- Equipment financing
- Merchant cash advance
- Business overdraft
- Business microloan
There are pros and cons to each of these funding options, so it’s important that you weigh these up to determine which loan type is best for your business.
How Can a Startup Business Loan Help You?
For startups looking to grow their venture, a business loan is a great place to start. There’s many ways a startup business loan can help you, including:
- Increasing working capital to cover day-to-day expenses
- Purchasing new equipment or machinery
- Leasing a work space
- Covering cash flow fluctuations
- Buying inventory or stock
- Hiring new employees
- Covering advertising and marketing costs
- Pay BAS or tax payments
- Invent or create a new product
Challenges for Startups Seeking Finance
While business loans are beneficial to startups, they can often face challenges in trying to secure the finance they need. We’ve outlined the most common challenges startups encounter when trying to apply for a business loan.
Inability to provide evidence of cash flow
Without enough evidence to prove your business is profitable, a lender may be hesitant to approve your loan application. Proving sufficient cash flow helps to reassure a lender that you can repay your loan.
Lack of trading history
If you haven’t been in business for long, it’s understandable that you lack trading history. This aspect is highly linked to cash flow, as if you’re not making lots of sales on a regular basis, you’re unlikely to have cash coming back into your business.
Limited time in operation
Many lenders, including both secured and unsecured, will have strict qualifications regarding how long a startup must be in operation before they can qualify for a business loan. Each lender is different, however, so be sure to shop around to see which one is more catered towards your needs.
Insufficient annual turnover
As well as time in operation, a lender will also want a startup to have a minimum annual turnover before they can qualify for a business loan. This will further reinforce to the lender that your business is making enough money for you to be able to repay your loan.
Why Choose Lumi for Your Startup Business Loan?
While some alternative lenders require a business to have been operating for a minimum of 18 months before they’re eligible for a startup business loan, Lumi is different. To qualify for our transparent unsecured loans, we simply ask that a business has been running for at least 6 months with a minimum annual turnover of $50,000. Additionally, you just have to have an ABN or ACN.
At Lumi, we also don’t believe in hidden charges or sneaky fees. To find out more about our business loans, check out our FAQ page.
Additional Resources for Startups
Want to find out more about boosting your venture? We’ve also included some additional resources below to further help your startup grow:
- 25 Ways to Grow Your Business Fast
- 20 Questions to Ask Before You Apply for a Business Loan
- How to Get a Small Business Loan Without Collateral
Lacking the necessary funds to grow your startup? For a fully transparent small business loan that takes just minutes to apply for, get started with Lumi today.
