Eligibility Requirements for Startup Business Loans: What You Need to Know

By: Aaron Robbins0 comments

Looking for a start up business loan but remain unsure if you’re eligible or not? We’re happy to step you through the eligibility criteria for a startup business loan and tell you what you need to know before applying.

With a vast array of business financing solutions, Diverse Funding Solutions can work with you to find you the most suitable loan product, with the most suitable lender, to get your new venture off the ground.

What is a startup business loan?

A startup business loan is effectively a finance solution that enables business owners to access the funds they require to help finance their startup business venture. Loans are typically paid as a lump sum, which means that you can access a lump sum of money, which you then repay, including interest charges and potentially fees to the lender. While there is no specific ‘startup business loan’ type on the market, there are a range of different funding solutions that can be colloquially referred to as a startup business loan.

At Diverse Funding Solutions, we help business owners access secured and unsecured loans to use as their startup financing solution.

Secured loans

Many of the loan options for startup businesses are secured loans. Secured loans are loans that have an asset that forms security for the loan. For businesses in the startup phase, it may be difficult to offer a business asset, which may lead some business owners to offer their personal assets as security for a business loan. Understandably, this can potentially lead to personal assets being compromised if the business is unable to repay the loan, and ends up defaulting.

Secured loans commonly come with lower interest rates than unsecured loans, however, could potentially be more restrictive in terms of what the funds can be used towards.

Unsecured business loans

Unsecured business loans are loans that do not have any collateral offered as security. This means that they are potentially more tricky for early-stage businesses to access, however, can provide more flexibility for the use of the funds. Business loans vary depending on the business structure, funding requirements and loan type, however, the interest rate on an unsecured loan is typically than the interest rate on a secured loan.

What can I use startup loan funds towards?

Establishing a business requires financial resources. Even with a promising idea, it often takes time to generate revenue and achieve profitability. Depending on the nature of your business concept, you may require funding for various purposes:

  1. Acquisition or leasing of business equipment necessary for production or service delivery.
  2. Cover expenses related to leasing, renovating, or purchasing a business premises.
  3. Procuring inventory or stock for selling.
  4. Working capital to cover day-to-day operational expenses, such as marketing and staffing costs.

A startup business loan can provide the necessary financial support to kickstart your venture. It may enable you to transform your entrepreneurial aspirations into a successful business. Additionally, a startup business loan may serve as a safeguard against running out of funds before your business gains traction in the market. Insufficient capital and slow-to-start cash flow is a common reason why startups fail.

money, coin, investment

Business loan eligibility for startup businesses

The eligibility for a startup business loan comes down to the lender that you’re applying with, and the specific loan product that you’re applying for. However, as a general rule, the eligibility for startup loans includes:

  • Holding an Australian Business Number (ABN) or Australian Company Number (ACN).
  • Clear idea of your business idea, including a detailed business plan.
  • Ability to repay the loan. This may be either through cash flow, your own money or projected revenue.

What makes it challenging for businesses to get startup funding?

Undoubtedly, in the process of developing your business idea, the question ‘what if my business fails?’ will have come across your mind. Unfortunately, in Australia, approximately 60% of new businesses fail within the first three years of running. The challenges of establishing a business mean that lenders may be reluctant to offer a startup loan to business owners without a successful business history.

How to boost your chances of getting approved for a start up business loan

To help aspiring business owners secure funding, we’re happy to provide our tips on how to boost your chances of getting approved for startup loans.

Contemplate using a secured loan

Accessing an unsecured loan could be challenging with little trading history, therefore, opting for a secured loan (which should provide security for the lender) may be a more accessible loan type. However, as is true with all financial decisions, conducting your due diligence to research your options is often sound business practice.

Know how’ll you repay the funds

Private lenders generally seek to establish a repayment schedule based on an appropriate exit strategy for repaying the loan. For example, if you expect a large invoice to be paid or receive grant money from the government, this could be considered a suitable exit strategy. Consider how you intend to repay the loan before applying so that you can present with a well-thought-out application to ease you through the application process.

Pay attention to your credit score

Perhaps obviously, the higher your credit score (be it your personal or business credit score) the higher likelihood that you may be approved for a startup business loan. Just as you put thorough thought, planning and consideration into your business idea, investing the time to help [improve your credit score] before applying for a business loan could potentially improve your chances of being approved.

Consider private lending

If your credit score leaves a lot to be desired, or you believe that you will likely find it challenging to source business financing through traditional lenders and financial institutions, you may wish to investigate using alternative lenders such as private lenders.

Private lenders aren’t bound by the same restrictive lending criteria as mainstream lenders, and often, do not require a credit check to support their loan approvals. Small businesses with limited businesses history commonly use private lenders for startup funding.

How can Diverse Funding Solutions help with startup financing?

At DFS, we know that building a business takes blood, sweat, tears, and money! That’s why we’re passionate about assisting innovative startups in sourcing the most appropriate lending solution to help propel their business forward.

With access to over 200 of Australia’s top private lenders, fast funding and low documentation requirements for our loan applications, reach out to the team at Diverse Funding Solutions to chat about how we can help turn your big business ideas into reality through a startup loan.

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