How to get a startup loan

Every business founder should investigate whether a startup loan is right for them.

Startup loans are a great way for a business to launch with a bang: worth up to $25,000 per company director, they are offered at a competitive rate of just 6 percent (at time of writing, January 2024) and often come with mentoring and professional advice.

If your business is less than three years old, you should consider this as a source of funding.

Let’s look at what you need to have in place to apply and how to maximise your chances of success.

Before you apply

Craft a solid business plan: a well-written business plan demonstrates your viability and seriousness to lenders. You’ll find plenty of resources and templates online to help you map out your business idea, market analysis, financial projections, and marketing strategy.

Assess your financial needs: it’s important to have a plan about how you will use the money. Show how much capital you need for things such as operations, equipment, inventory, and marketing. Overestimating can see you saddled with unnecessary debt, while underestimating can hold back your growth.

Boost your credit score: a strong personal and business credit history will stand you in good stead for future borrowing and indicates the general health of your business. Lenders (and potential future investors) consider your credit score to be a key indicator of your ability to manage finances responsibly.

Explore funding alternatives: Startup loans should be considered alongside other sources of funding such as personal savings, family and friends, crowdfunding, and professional investors. You may also wish to investigate grants which are awarded to businesses that solve particular problems (usually in research, innovation or sustainability).

Applying for the loan

Swoop can help you at every stage of the journey.

When you sign up to Swoop, open banking technology will save you hours of time by identifying products that are right for your business and automatically completing forms with securely shared information.

Lenders will typically want to see:

• your business plan
• your revenue
• your trading history (if you have any)
• your founders
• your projected earnings

Tips for maximising your chances of success

Swoop will help you access a network of lenders: Swoop’s specialists will take the time to understand your needs and guide you through the process.

Focus on your business’s unique selling proposition: remember to highlight your competitive advantage, and experienced team members.

Seek professional help: applications submitted with the support of an accountant will have a higher chance of success.

While the process of getting a startup loan can be slow and more restrictive than other types of business borrowing, they are still worth investigating as a new business owner because there are many positive aspects to these specific products: Government-backed startup loans require no security or personal guarantee, they may offer deferred repayments and providers will consider riskier businesses or ideas than most traditional lenders.

What are some of the funding challenges a startup might face?

Startups often face many challenges when seeking funding. These include limited access to capital, as they may struggle to secure enough funds for expenses. Investors and lenders often view startups as risky investments due to uncertain business models and inexperienced management teams.

With lots of startups looking for funsing, getting it can be a challenge. Sometimes, funding gaps can arise at different growth stages, hindering scalability. Plus, the funding process itself can take lonf and needs a lot of planning, pitching, and due diligence.

Additionally, startups may not have assets to put up for collateral, making debt financing difficult. Uncertain revenue forecasts can also scare investors, so seeking funding takes determination and strategic planning.

What are the alternatives to startup financing?

When exploring alternatives to startup financing, you have several options to consider depending on your needs and circumstances.

• Crowdfunding: Crowdfunding platforms allow you to raise funds from a large number of individuals who contribute small amounts of money to support your business idea or project.
• Angel investors: Angel investors are individuals who provide capital to startups in exchange for equity ownership or convertible debt. Angel investors often have entrepreneurial experience, providing valuable mentorship and guidance in addition to funding.
• Venture capital: Venture capital firms invest in startups with high growth potential in exchange for equity ownership. Venture capital can provide funding to scale operations, enter new markets, and accelerate growth.
• Small business loans: Entrepreneurs can apply for small business loans from banks, credit unions, or online lenders to fund their startup. Small business loans typically require a strong business plan, good credit history, and collateral or personal guarantee.
• Government grants and programs: Government agencies and nonprofit organisations offer grants, loans, and support programs to help startups get funding, resources, and expertise. These programs may be available at the federal, state, or local level and may have different eligibility criteria and application requirements.
• Strategic partnerships: Partnering with other businesses or organisations can provide startups with access to funding, resources, distribution channels, and expertise. Strategic partnerships can help startups accelerate growth, expand their reach, and reduce risks while maintaining independence and control.

A startup loan may be just the thing to kickstart your new business, so check out our comprehensive guide to Australian startup funding which will give you more information on the scheme.