Startup business loans & finance options

You’ve got a brilliant idea for a business and you’ve decided it’s time to take the plunge. But, no matter how simple your model is, building a business is not without challenges — especially when it comes to securing startup funding. We cover everything you need to know about funding a startup.  

Key points about startups & business loans  

  • Nearly one in five startups (18%) borrow money to launch their business, according to Lend proprietary data. 
  • The average loan amount request for startups in Australia is $30,000 (unsecured)* 
  • Startups can only borrow from non-bank lenders with more relaxed eligibility criteria for loans 
  • Interest rates on business loans for startups are higher 
  • Most startups only qualify for unsecured loans  

How to qualify for a startup business loan

Business loans for startups are more difficult to secure than standard business finance. Most lenders will require:  

  • Between six and 12 months of trading history 
  • A minimum monthly revenue of $10,000 
  • Proof your business can repay the loan or collateral

Startups can get financing from non-bank lenders with less stringent lending requirements, but rarely bank loans. It’s important to remember that interest on startup finance is higher because of the risk to the lender. New businesses often don’t have a business credit score, trading history, or collateral to offer as security for the loan. That’s why startups often have to settle for an unsecured loan with high interest rates as their only option. You’ll need to think about how you’ll cover your loan repayments and the interest until your business takes off.  

What are the interest rates on business loans?  

Interest rates on business loans can range from 10-15% per annum (p.a.) for secured loans where an asset like a home, car or equipment is used as collateral. Unsecured business loans have much higher interest rates, between 15-20% p.a. 

How much can you borrow with a startup loan?  

A business just starting out should go straight to a non-bank lender and may initially only qualify for: 

  • An unsecured small business loan of between $10,000 and $50,000 if you have the minimum turnover required by the lender 
  • Startups with a proven track record and sufficient revenue may be able to borrow up to $500,000 in unsecured loans.

It’s not always possible to predict borrowing capacity for a startup as it hinges on factors specific to that business like its capital/collateral, credit rating and how long it's been operating. 

Why can’t startup businesses get bank financing? 

Banks have strict lending criteria for businesses and see startups as being too risky. The main reasons for this typically come down to:  

  • Insufficient capital/collateral: New businesses have limited assets and cash reverses to use as security for a loan, which means banks have no way to recoup costs if the business capsizes. You can use personal assets such as real estate, but that comes with risk. 
  • No business credit rating: It can take three years or more to build business credit and be eligible for a small business loan.
  • No business history: New ventures initially lack business experience and expertise in running a successful operation, which is why banks prefer to finance existing businesses with more acumen. 

To qualify for a loan, especially with a bank, you’ll need to show that you have enough income or profitability in the business to meet your obligations – which means you’ll need a steady and ongoing source of revenue. You’ll need to calculate your loan repayments to see if you can hack it or whether you’re flogging a dead horse. 

However, if you have personal assets – particularly property – you may well be able to take out a secured business loan to give you the seed capital for your venture. Be aware though, that you’re putting your home at risk if you use it to secure a loan. If your business fails and you can’t repay it, you could lose everything, even the roof over your head.

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Types of funding for startups  

There are multiple sources of funding available for startups, each with its own benefits and drawbacks. Be sure to consider the eligibility criteria and requirements of each funding option in conjunction with your financial situation and business goals. 

Loan Speed

Unsecured business loan

You may qualify for a short-term unsecured business loan if you have at least 12 months of trading history and a minimum turnover of $50,000 or more. Unsecured means there’s no collateral required for the loan. The funding is based solely on the borrower’s creditworthiness and you’ll need to show you have enough income to meet your credit obligations. For lenders, unsecured loans carry more risk which means there’s usually a shorter term on the loan and a higher interest rate.

Pros Cons
  • Interest and loan fees may be tax deductible
  • No personal or business collateral needed 
  • Suitable for sole traders and new businesses
  • Higher interest rates compared to secured loans
  • Smaller loan amounts and shorter loan terms
  • Stricter eligibility requirements

Personal loan

If a business loan is out of reach – you may still qualify for a personal loan. Lenders may be reluctant to lend a new business money, but this doesn’t mean they won’t lend you (as an individual) money, especially if the amount you’d like to borrow is small and you have a good credit score. 

Many personal loans don’t require collateral. Personal loans are given to a person or individual, so the lender will look at your personal credit history and finances when assessing how much you can borrow. 

If you’re planning to give up your day job to work on your new business you’ll have to declare that when you apply for a loan, which means the lender will discount your earnings from that job when calculating your serviceability (your ability to repay the loan). If you’ve already quit, you may find it hard to secure even personal funding, unless you have another income source such as investments or rental income. 

Pros Cons
  • Use your good personal credit history instead of business history
  • More flexible repayment terms (1-7 years)
  • Many lenders don’t require collateral for personal loans
  • You can only borrow small amounts (up to $30,000)
  • You won’t build business credit through repayments and interest/fees are not tax deductible
  • Some lenders may not allow the use of borrowed funds for business

Professional investors

Professional investors may operate as part of a venture capital fund (a pool of investors) or individually (also known as ‘angel investors’) to invest in startups with high growth potential in exchange for an equity share. There are various venture capital funds and angel investors in Australia and overseas who provide upfront capital to emerging businesses in the hope of getting a piece of the pie. This will almost always involve some negotiation on the value of the equity. It could range from 10-50% of your company. 

Some investors will make a direct capital injection while others will offer convertible debt, which acts like a normal interest-bearing loan, but gives the investor the right to exchange it for stock at a later stage. They will expect you to have done extensive market research and detailed financial and strategic planning, and to present a compelling (and passionate) business case before they consider investing in your startup. 

Pros Cons
  • No repayments if your business fails because funding is not a loan, but offered in exchange for equity
  • No credit history needed
  • Access to investor expertise and valuable networks
  • You lose some ownership of your business in exchange for capital 
  • You could give up too much equity to a third party who may not share your goals, vision and risk appetite
  • Higher performance expectations

Convertible notes

A convertible note is an investment structured as a loan that converts into equity. The investor lends money to a startup and instead of receiving a return in cash, they receive equity upon a predetermined conversion event. 

Here’s how it works: The investor provides the startup with funds on the basis that they’ll receive a discount on shares when a predetermined trigger occurs, usually after a ‘Series A’ round of funding. Once a Series A pre-money valuation is determined, the convertible note will convert into shares at the discounted rate. The discount is generally between 20% to 40% of the share price. 

Convertible notes are often used when a valuation cannot be determined. It can be hard to value a new startup, so instead of trying to negotiate a valuation, you can raise funds today and delay valuing the business until you have more to base a valuation on.

Pros Cons
  • Less risky than equity financing
  • Defers valuation of the company to assess its real value
  • Lower transaction costs and less paperwork
  • Interest rates on convertible notes are higher than on traditional loans
  • Convertible notes can dilute earnings per share
  • Defaulting can push a company into bankruptcy
Credit cards

Credit card

Using a credit card to fund your startup costs may seem like an easy solution – but it’s a very risky move. Business credit cards typically come with high interest rates – often close to, or even exceeding 20%. Factor in the interest piling on top of your borrowings every month and your balance can quickly spiral out of control if you’re not careful. If you do take this route, make sure you pay as much off as possible each month. 

If you switch credit cards regularly you may be able to take advantage of 0% interest introductory deals on purchases and transferred balances – but if you’ve given up regular work to start your business you may find it hard to get new credit facilities when the interest free period runs out, and find yourself stuck paying higher interest. 

While unlikely, you also need to be aware that the terms of most credit cards state that the lender can withdraw the facility at any time, without notice, for any reason – potentially leaving you with a hefty debt and no way to repay it. 

Pros Cons
  • Easy access to cash, with interest only payable on the drawn balance
  • Many facilities offer 0% interest introductory rates, so it can be a cheap way to finance early expenses, provided the balance is paid quickly
  • You can earn rewards and cashback on eligible purchases
  • Credit card interest rates are usually substantially higher than other borrowing options
  • Credit facilities can be withdrawn at any time and for any reason, making this a very risky option and potentially an expensive one
  • Easy to overspend if credit limit increases
Home loan

Home equity loan

If you own a property and have built up equity, you may be able to release that equity and use the funds to finance your business. What that means in real terms is that you’ll be taking out a mortgage or extending an existing mortgage over your property – using your equity as collateral. You won’t be able to release equity from your home unless your lender believes you can service the repayments, so you’ll need proof of a steady, ongoing income to qualify. 

It’s basically the same as taking out a secured, long-term personal loan. Mortgage rates are generally lower than most other types of finance, so it can be a cost-effective way to get your hands on a decent amount of cash with a long repayment period. 

Be aware though that you’re putting your home at risk if you use it to secure a loan – if your business fails and you can’t repay it, you could lose the house.   

Pros Cons
  • Home equity interest rates are lower compared to loans for startup businesses
  • Use the equity in your home to access a substantial sum
  • Longer repayment timelines
  • Subject to interest rate fluctuations which can impact your repayment costs
  • You may be locked into the loan and paying more interest for a loan you no longer need and penalties may apply for early repayments
  • You could lose your home if you default on the loan
Lending peer

Peer-to-peer lending (P2P)

An increasingly popular alternative to seeking professional investors is peer-to-peer lending, which is also done online. These fintech sites work like marketplaces that connect borrowers who need startup money with investors who want a good return on their investment. While these sites appear to bring lenders and borrowers together, they actually perform the same function as a bank. The relationship is not direct – the platform acts as an intermediary and charges fees to both parties. 

To borrow from a peer-to-peer lending platform, you’ll need to apply for a loan and pass a credit check, just as you would with any other finance provider, to prove that you can afford to repay the loan. You’ll also have to make a convincing pitch for your business as these investors are looking for high-potential investments to compensate for the risk they’re taking. 

However, you can expect the application process to be much faster than it would be through a traditional lender, and you will probably be offered lower interest rates than you’d get from a bank. 

If you decide to explore this route, make sure to check out the terms and conditions of any loan, and understand any fees or hidden charges that may apply. Peer-to-peer lending isn’t subject to the same rigorous regulations as financial intuitions, so it’s wise to know exactly what you’re signing up for.

Pros Cons
  • Competitive interest rates compared to a standard business loan
  • Financed by peer investors, not banks
  • Lending available for borrowers with a lower credit rating
  • Additional fees on top of the interest rate charged by P2P platforms to act as the middleman
  • Requires pitching your business to strangers and passing credit checks
  • No direct relationship with investors or access to their expertise
Sweat Equity

Sweat equity

Startups don’t always have the funds to pay for staff or salaries and can use sweat equity as an alternative remuneration. It involves compensating the people within your business for their time, effort and labour in equity shares, not monetary wages or a hybrid of the two. 

Expertise rarely comes cheap and getting the professional help you need can be one of the greatest expenses for a startup. If your idea is compelling though, you might find that people are willing to contribute their time and knowledge in exchange for an equity stake in your business instead of payment. 

They’ll become your partners and share in both the risks and rewards of your venture, so you can expect them to be as committed to its success as you are. If you opt for this route it’s important to choose your team carefully, finding people who fully understand your strategy and have the same vision for the business as you do. 

Pros Cons
  • Save money in the early stages of your business when cashflow is limited
  • Attract top talent without having to pay them large salaries
  • Teams are more motivated to succeed to reap the rewards
  • You give away a percentage of your company
  • Equity shares can be difficult to value as they’re based on time contribution
  • Disagreements may ensue between equity partners


‘Bootstrapping’ means covering all your startup costs yourself — using only your personal finances or operating revenue (the money the business makes gets reinvested). This option requires no external funding or investment. The majority of business founders fund their startups with their own money. 

If you decide to bootstrap, there are several steps you can take to minimise your costs and boost your chances of success – such as recruiting people who are willing to work for sweat equity rather than drawing a salary, and using social media to test and promote your idea rather than paying for advertising from the outset. 

Pros Cons
  • No loan or investor repayments hanging over your head
  • Retain complete ownership of your business
  • No external funding to repay if anything goes wrong
  • No access to emergency cash to cover unexpected or big upfront costs
  • Working and building a business at the same time can be exhausting
  • You may need to borrow against personal assets to save your business
Savings and cash


Investing your savings to fund your startup could deliver a far better return than any bank account or term deposit. And since any sort of business loan will probably incur a far higher interest rate than you can earn on your savings, it makes total sense to use funds you already have rather than borrow to start your business. 

Be careful though because the startup costs of a business can add up quickly and there will always be expenses you didn’t expect. You could end up eating through your savings before you know it and be left with nothing if your business venture fails (but at least you won’t have debts hanging over you). 

Poor cashflow is one of the top reasons Australian small businesses fail, so if you’re going to rely on savings and not apply for a loan facility as a backup, you’ll need to manage your working capital with extreme care. 

Pros Cons
  • No loans or cash advances to repay 
  • Can help build up your trading history and increase your chances of securing a loan after six to 12 months
  • Keep your operations simple — no pitch, no business plan and no paperwork
  • Your money alone may not be enough to finance your operations and growth can be slow without proper cashflow
  • No credit facility means no backup cash for contingencies
  • You risk losing your life savings if your business fails
Business grants

Business grants

You can also apply for government business grants to fund your growth. Federal, state and local governments offer hundreds (yes hundreds) of grants each year to support new and existing businesses across all industries. You can use the site to search for grants available in your state, and program dates, and to check your eligibility. 

If you decide to apply for grant funding, expect to invest a lot of time and effort into the process. There’s no guarantee of success, which puts off many busy entrepreneurs, but if you do manage to secure a grant, the reward of ‘free’ money, plus the advice and support that usually comes with it, is well worth the hard work. 

If you don’t qualify for a government grant, you can try applying for private grants from known institutions like banks, universities and private companies.  

Pros Cons
  • ‘Free’ cash to start your business 
  • No debts or repayments and no impact on your credit score
  • Grants often come with other benefits, such as mentoring or professional advice
  • Lengthy and tedious application process
  • You’ll need to provide reports of the grant expenditure
  • Some businesses don’t meet the eligibility criteria
Borrow from people

Borrow from family & friends 

If you’re lucky enough to have family or friends with cash to spare, and it looks like you really do have a winning idea, they may be willing to back your efforts and share in your success. This may be a good option if you can’t persuade professional investors to put money into your business at this stage – or you just don’t want the loss of control that comes with a venture capital injection. 

It’s also fairly common. More than a quarter of Australian startups (26.1%) received some funding from friends and family, according to Statista. It can have many benefits – including lower interest rates and flexibility about when and how you repay the loan. 

But there are risks too, if an informal loan isn’t handled carefully. If you decide to take this option, you must take a professional approach and draw up a clear legal agreement setting out the terms of the loan and your repayment plan.  

Pros Cons
  • Typically good financing terms, including low interest rates and more flexible repayment terms
  • Retain full ownership of your business
  • No hard pitch, credit check or heavy paperwork 
  • Limited capital available 
  • Managing relationships and business may be difficult
  • If your business fails, your friend or family could lose their investment and resentment could ensue
Crowdsource Funding


Another way to harness the goodwill of your family and friends – and maybe even some random well-wishers – is to crowdfund. This means taking to the internet and asking people to make contributions, however small, to help you get started. You can use various online crowdfunding platforms to promote your business idea and raise money. 

It can be staggeringly successful, and if you have enough people out there who believe in you or your idea, it can be a great way to raise a decent sum without asking any one person to risk a lot of money. However, there’s no guarantee you’ll raise the funds you’re looking for. 

There are several platforms you can use, each with a slightly different focus – and a range of fees, terms and conditions. Both the platform and payment system providers make their money by taking commissions from the funds you raise. Some will charge your donors an extra fee on top of their contribution – which can lead to ill feelings – and others take a percentage of each donation you receive. There also may be payment processing costs which can be 2.5- 3% on top. 

Pros Cons
  • Crowdfunding can raise a lot of money and build a customer base at the same time
  • You don’t give up equity
  • No credit check or collateral required
  • Platforms and payment systems both charge fees that chip away at the funds raised
  • You’ll need a killer idea, pitch and launch campaign to crack this saturated market
  • Relies on finding enough people willing to support your new venture

Lending tips for startups who don’t qualify for bank loans

Chief Operating Officer at Lend, Phil Druce, shares some expert tips on alternative finance options available from banks. 

Merchant cash advance 
If your business collects payments by credit and debit cards, you can apply for a merchant cash advance with your bank. This is a funding option that gives you cash upfront and that you repay as a percentage of future sales made through your card payment system. This is a good option if you need funds quickly and have no assets to provide as security. 

Invoice finance 
As you start to invoice customers, you can ‘sell’ these invoices to a lender who in turn will give you a large percentage as an advance until the full amount of the invoice is paid. Invoice factoring can help improve your cashflow when starting out. 

Credit card 
You can also get a credit card pre-revenue, although there will initially be a lower credit limit. This can help you track your business spending, earn rewards on purchases and, more importantly, build your business credit score.   

How to get a startup loan

Startup funding is never guaranteed, but there are steps you can take to maximise your chances of getting a business loan. 

1. Get your financial paperwork sorted 

If you’re applying for business finance, you (and any directors or partners) will need to provide financial documents and other paperwork, including: 

  • Financial/bank statements
  • Business registration and tax information
  • Balance sheet
  • Value assessments and documentation of assets
  • Proof of revenue
  • Identification documents   

2. Demonstrate your ability to make repayments  

Show the lender your business plan, financial forecasts and cashflow projections. If you don’t have assets to provide as security for the loan, you could ask directors and partners to act as guarantors, although this means they’ll be liable for any outstanding debts on the loan. 

3. Use your assets as security

You can increase your chances of getting approved for a startup loan if you provide some type of asset as security. It’s usually property, but it can also be cash, or business assets like equipment, stock, or accounts receivables. Otherwise, you might be able to get an unsecured loan for a small sum.  

FAQs about startups & business loans

What is a startup business?

A startup is a newly formed business or one that’s in the initial stages of operations. There’s no categorisation based on the number of employees (like SMEs) or revenue for startups. Startup revenue can vary widely from $1,000 to $10 million annually. It depends on who you ask.

Why do startups need funding?

Startups need funding, also called ‘early stage capital’, to get started and support their expansion. New businesses often don’t start with a lot of money, so they borrow to pay for operating expenses, stock and equipment, utilities, insurance and licences, marketing, and so on. One in five startups (22%) obtain finance for day-to-day capital, and a similar amount to buy business vehicles.

How long does it take to secure a startup loan?

It depends on the type of loan you’re applying for. If your funding application is successful, unsecured business loans only take a few business days to process, while secured loans may take a few weeks depending on the guarantee/collateral, paperwork required, and credit approval process.

Can I get pre-approval for a startup loan?

Yes, you can get pre-approval for a startup loan, depending on the lender you choose. You can apply for a loan and pre-approval online, or speak to your broker or lender about getting a pre-approval letter.

Do I need a deposit for a business loan?

You generally don't need a deposit to get a business loan, unless you’re taking out asset finance to buy equipment, in which case you may have to advance a percentage of the asset you want to buy.

Can I get a business loan with bad credit?

It can be difficult to get approved for a business loan with bad credit. Your options will be limited to bad credit business loans which are similar to standard unsecured loans, but come with higher interest rates. The minimum credit score for business lending is generally around 400.

Will my startup need additional funding?

The majority of startups will require additional funding, and multiple funding rounds to continue to grow and scale their operations.

1. Proprietary data of startup businesses who applied for finance through and have been operating for at least 12 months (2023). 
2. Statista - Types of debt taken on by Australian startup founders to support their startup in (2021).  

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