Small business loans for startups - What are my options?
Jack Richings

Jack Richings

Small business loans for startups – What are my options?

Setting up a successful business takes more than just an excellent idea, it takes backing. Backing can be defined in millions of different ways, but here are two key forms of backing. Consumer and Financial...

Setting up a successful business takes more than just an excellent idea, it takes backing. This can either be in the form of customer backing or financial backing. Customers have got to want to purchase your product or service in order for your business startup to succeed. But a big hurdle for many new business owners is obtaining financial backing. This can either be self-funded or in the form of loans. Small business loans for startups are growing in popularity and we are going to discuss why in this article.

Customer Backing: Give People What They Want

No business in the world could survive without the demand for the product or service being offered. If your idea doesn’t sell then you won’t earn and the business won’t survive. You need to make sure that your product/service fills a need in the market that is not already there or has few competitors, or that you can deliver in a unique way.

Oliver's is a great example of a niche in the fast food industry

Niche products/or services tend to do better than those offerings trying to appeal to a broad range. Yes, there are more customers in a broad reach, but there are also many big players, well funded and well known and you will find it hard to compete. You wouldn’t start a small burger joint next to a McDonalds, but you could, for example, offer a healthier version of fast food, like the company Olivers, who sit alongside McDonald’s, at service centres for road trip breaks. They offer the same fast service, clean bathrooms and a healthy, tasty alternative.

Financial Backing In The Form of Small Business Loans

start up business backing

While you need the consumer to back your idea, this has to be financed in some kind of way. You might have a $1million idea, but if you don’t have $10k to get it off the ground then you’re going nowhere. Similarly, you might have 1 million customers wanting your product, but if you can’t finance the supply of these 1 million items then your business is over.

Financial Backing is crucial to any small business

Start-ups are vulnerable by nature, defined as:

“A new, fast-growing business that offers a line of 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.”

The final line is the key phrase here because there is a fine line between an idea grew into a successful business or a failure.

How to build a successful startup business using business loans

Small business loans for startups

Financial backing is crucial for a small business startup, which brings us to the topic of business loans. What makes potential entrepreneurs apply for small business loans?

MYTH! “Business loans are scary and just place you in massive debt”

The fact is, small business loans are fantastic opportunities to get a small business off the ground. If you pay your small business loans on time and you will never have any issues. A small business loan can propel your business from a kernel of an idea into a thriving enterprise in very little time. The main reason business owners get into hot water with small business loans not being organised with repayments, borrowing more than is needed or the business idea wasn’t strong enough to start with.

There are plenty of small business loans for startups to choose from, and it’s up to you to scrutinise their features and pick accordingly.

What Small 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. Fortunately, there is a wide range of options when it comes to funding for a small business startup. The problem is choosing which option to go for!

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 security, as a back-up if you default on the loan.

Loans from Alternative, Non-Bank or Online Lenders

A good option when looking for small business loans for startups. Private lenders will often accept your loan applications, even when banks will not. There can be some flexible options out there too, and if you choose the right lender, they will take care and tailor the loan to best suit you. However, it is advisable to do some research before choosing a non-bank lender. Some of these lenders make false promises and charge high interest rates. With this being said, there are many private lenders out there of which you can trust. ALC Commercial is one of these trusted lenders who will put your business startup first.

Flexible terms for small business loans

Recently, the number of online and alternative lenders has been on growth. This is a good thing for the obvious reason, namely because these lenders offer more flexible terms.

Money available sooner

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.

Beware of the scammer

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 per cent certain that you will be assisted by reliable professionals, and that our offer for business loans is diverse and convenient.

Credit Cards

credit cards for start up business

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. You can compare which credit cards will give you the best rates and fee’s online. Websites such as Compare the market and Finder can be fast and useful online tools.

Types of Loans

Unsecured Business Loans

If you’re applying for an unsecured business loan for startup businesses, 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. Unsecured business loans are great because they come with less risk – for example, you won’t have to put any assets, such as your house on the line. However, an unsecured business loan for startup businesses often comes with high interest rates.

Invoice Factoring

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 You 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.

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 per cent 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.

Remember: being a business owner is not easy

Hard working business owner

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 when the time asks for it is definitely reassuring. Small business loans for startups are a great option. Nonetheless, make sure you don’t make any rushed decisions, and pick your lender carefully.

For more information on business loans, commercial finance, debt consolidation, bad credit business loans and low-doc business loans talk to our experienced and understanding loan specialists to see how our business loans can support your business goals.

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