Setting up a business requires much more than an excellent idea. While coming up with a creative idea is still important, one should also think about financing, which brings us to the topic of business loans. On that note, there are plenty of loans to choose from, and it’s up to you to scrutinise their features and pick accordingly.
What is a Start-up?
In plain English, a start-up represents a new, fast-growing business that offers a line or services or products. Start-ups could be sole traders, organisations or partnerships that work on a certain business model. Additionally, a start-up is defined by change and development. Technically speaking, a start-up isn’t a self-standing business, per say. In fact, it is in the process of becoming a successful business. That being said, we could argue that the one thing that characterises start-ups is growth, which necessitates financing via business loans.
What Business Loans Are Available For Start-ups?
Typically, start-ups have minimal internal funds at their disposal. As a result, these companies have to choose between two primary types of financing, namely equity or business loans. Equity financing refers to getting funds from investors, or a public float, in exchange for a share of the company. Meanwhile, debt financing implies borrowing the money from a lender or bank.
Loans from Traditional Lenders
If you want to apply for business loans at a typical bank, you should know that the application process is time-consuming. Normally, applying for a loan will require providing a comprehensive business plan. Additionally, another condition might be adding a security, as a back-up if you default on the loan.
Loans from Alternative or Online Lenders
Recently, the number of online and alternative lenders has been on the growth. This is a good thing for the obvious reason, namely because these lenders offer more flexible terms. Concurrently, in some instances, you can get hold of the money in 24 hours time, which can be rather convenient in the case of emergencies. Nevertheless, the drawback is that, considering the growing number of such lenders, there are plenty of scammers out there. That is why you should be careful about selecting your lender. For example, if you choose ALC Commercial, you can be 100 percent certain that you will be assisted by reliable professionals, and that our offer for business loans is diverse and convenient.
If you need access to an ongoing line of credit, or you need a considerably small amount of money, a credit card could be a viable alternative.
Types of Loans
Unsecured Business Loans
If you’re applying for an unsecured business loan, the lender will assess the financial situation of your start-up, in order to determine your capability of making repayments. In general, the established minimum and maximum amounts vary by the lender. As for the repayment period, it is usually short, ranging from three months to three years. The quicker you manage to make repayments, the more money you’ll save on interest.
Moving on, invoice factoring allows you to borrow against outstanding invoices. Hence, you’ll repay the loan when the clients will honour the invoices. This is an effortless, accessible way to cope with your start-up’s cash flow problems if the situation asks for it.
Purchase Order Financing
If you encounter difficulty in filing an order due to serious cash flow problems, you can get a purchase order financing loan that will pay your suppliers on your behalf. As opposed to requiring property as security, purchase order financing is supplied based on your company’s profile, experience in the industry, your clients’ and suppliers’ reputation. Must I provide security? This aspect depends on the lender you select. Generally speaking, you’ll also have a say in this, depending on whether you want to supply a guarantee or not. The advantage to providing security is diminishing the repayments. Nevertheless, the risk associated to this decision is that you place your asset at risk, considering that you default on the loan.
Are there any important Business Loan Regulations?
The start-up sector has been made more approachable with the implementation of a range of regulations, which make it easier for Aussies to access finance. For instance, starting the 1st of July 2016, if you support up-and-coming start-ups, you will get 20 percent non-refundable tax offset. This applies to investments of $200,000 per year, per investor. Concurrently, changes have been applied to crowd sourced equity funding schemes, allowing entrepreneurs to raise as much as $5 million per year, in funds.
Without a doubt, being a business owner is not an easy task. Although it is challenging to get a start-up on track, knowing that you can apply for business loans when the time asks for it is definitely reassuring. Nonetheless, make sure you don’t make any rushed decisions, and pick your lender carefully.