Here's What You Need to Know About Getting Start-up Finance

Starting a business is an incredibly exciting time. Much planning, consideration, time and energy has been unquestionably put into your decision — but for start-ups, to get your business off the ground, there is often much money that also needs to go into it.

Accessing a business loan when you don’t have a trading history or business track record sometimes makes it difficult to leave the starting line. So how do you get start-up finance? Your options are limited, but a few tried and tested ways exist!

Equity financing

Equity finance is a common form of start-up funding. Basically, you sell a percentage (shares) of your startup business to an investor. This capital investment can go a long way towards getting your business up and running. The major downside is that you’ll need to share any profits with the investor as they’re essentially a part owner of your business venture. For people wanting to retain control over their operation, equity financing may not be a desirable option — especially for small businesses.

Equity financing options:

Venture capital. Venture capitalists work on behalf of venture capital firms to invest money (often on behalf of private investors) in start-ups.
Angel investors. An angel investor is an individual who supports entrepreneurs to get their business idea off the ground. They’ll generally take a share in the business.
Bootstrapping. Bootstrapping is the term used to describe a business owner who is funding the initial investment in their own business. For self-funding to be an option, you would need to have significant savings or assets to access equity from.

Debt financing

Financing a start-up with a loan is called debt financing. This can be a good option for small business owners seeking to retain 100% control over their business. While traditional business loans are a common way established organisations seek funding, start-ups often have difficulting satisfying the eligibility, credit and serviceability criteria. But there are a few effective ways of raising capital!

Private lenders. Private lenders operate outside the restrictive lending realm that traditional lenders like banks and other financial institutions are bound by. This means it’s much easier to access the funds you need for your business purposes. You’ll often need property to use as security when accessing finance through a private lender.
Equipment finance. If you own assets, such as a truck, machinery or other eligible business equipment, it may be possible to raise capital from the equity in the asset. This is called a sale and leaseback agreement and allows you to finance an asset you already own (so you get the cash in your bank account and begin the loan repayments), rather than lending you money to purchase the asset (where the lump sum would be handed over in the sale transaction).
Invoice finance. There are options for invoice finance for even brand new businesses. If you’re starting with a contract in place, we can help you access a limit and facility setup before you write your first invoice! When you have raised invoices for your completed work, these invoices (your accounts receivable ledger) can be used as security to access a line of credit. Invoice finance allows you to access up to 85% of the value of your accounts receivable.

Accessing start-up finance through darkhorsefinancial.com.au

Don’t let a bad credit score or a blank financial history prevent you from applying for the funds you need to help your business grow. At darkhorsefinancial.com.au, we pride ourselves on finding finance options for all businesses.

If you’re ready to apply for a long-term business loan or want to find out more information, contact the team at darkhorsefinancial.com.au.

Startup financing FAQs

Should I borrow money from a friend?

Borrowing money from people you know to use toward funding your start-up might seem like a great idea if someone is offering, but this method of startup funding should be approached with caution.

If your relationship with the lender would be damaged if you were to be unable to repay the loan, it may be best to politely decline the offer. While people enter into these agreements with good intentions, it’s very easy for things to go wrong.

Can I use a business credit card?

A business credit card might be a viable cash flow option, however, as a start-up, it may be difficult to meet the eligibility criteria. You may be able to get a personal credit card based on your personal credit score and regular income.

Do I need a business plan?

Australian lenders have a duty of care to ensure that they aren’t going to put you in a worse financial situation by lending you extra funds.

A business plan shows your research, revenue forecasting and planning — this is a great way to demonstrate that you aren’t making a borrowing decision on a whim, and have crunched your numbers! A business plan is a must if you’re thinking of pitching your idea to the partners of a venture capital fund.

Should I apply with online lenders?

If an offer sounds too good to be true, it likely is. Be wary of applying for startup financing online, as often, they’ll either be unable to help you or you’ll be charged extremely high rates.