As a startup founder in Australia, you're part of a dynamic and growing community. Home to nearly 160,000 startups – including 10,000 founded in the past five years – Australia is the sixth-largest startup hub in the world.

One of the biggest obstacles to startup growth is funding. Below, we'll explain how to finance your business with different funding options, including a term loan, business line of credit, equipment financing, or invoice financing. We'll also cover how to qualify for a startup business loan in Australia, your options if you lack significant trading history or revenue, and how funding can benefit your business.

Key takeaways

• A startup business loan is a small business loan for companies that have been operating for a short time – often less than two years

• Banks, government agencies, and nonbank fintech lenders offer traditional term loans for startups. Alternative options include business lines of credit and asset-based financing, such as equipment or invoice financing.

• Lenders usually consider trading history, revenue, reliability of cash flow, and credit history when evaluating your application

What are startup business loans in Australia?

A startup business loan is a type of small business loan for early-stage companies. Banks in Australia usually offer startup loans to businesses that have been operating for less than two years. Loans for startups can be used to buy equipment and software, market your services, pay for operating costs, or expand operations.

It can be difficult for a brand-new startup to get a bank loan, as banks often want to see at least one year of trading history before they'll work with you. You're a good candidate for a bank loan if your startup already earns revenue and has steady cash flow.

Businesses without trading history or revenue can choose from alternative types of startup business loans, such as loans from the government or nonbank fintech providers, business lines of credit, equipment financing, and invoice financing.

Why do startups seek external funding in Australia?

Here are some common reasons startups seek capital from outside sources:

• Short-term gaps in funding: Early-stage companies need funds to buy equipment, hire employees, develop products, and market their offerings. But without steady revenue, it can be a struggle to find enough working capital to keep your startup running day to day. External funding can cover payroll or supplier payments during a difficult financial period. It can also serve as a safety net for when funding gaps arise.

• Long-term investments: You might need more time – and money – to bring your startup to market, particularly if your startup is building an inventive or experimental product. Funding from external sources gives you runway to pay employees and invest in product research and development before earning dependable revenue.

• High-growth goals: Unlike traditional small businesses, startups prioritise fast, disruptive growth. They might aim to scale up and expand despite limited resources, and they're willing to take big bets to crack new markets. That could require more funding than they're able to earn from sales alone at first.

What types of startup business loans are available in Australia?

Startup business loans are a type of debt funding, which is financial support that lets you keep full control of your business. Here are the types of loans your startup business can choose from:

• Bank loan: You can borrow a lump sum of AU$10,000 to AU$50,000 and repay the lender in fixed monthly instalments for up to five years. Several banks offer unsecured startup business loans, which carry higher interest rates than loans secured by collateral.

• Government loan: Federal, state, and territory government loans are available to startups that meet certain criteria. For example, Aboriginal and Torres Strait Islander startups with less than two years of trading history can qualify for a term loan of up to AU$150,000. You can search for loans using the Australian government's grants and programmes finder.

• Online loan: Several nonbank fintech lenders provide startup loans that you can apply for quickly online. In some cases, they use alternative lending criteria to determine eligibility, such as live cash flow data. They also offer lending products that serve startups eager for speed and efficiency, such as short-term bridging loans to solve immediate cash flow issues.

• Business line of credit: Unlike a term loan, a business line of credit is a revolving account that gives you access to an approved credit limit. You can draw from the funds as needed. Once you repay the funds you've borrowed, the credit limit resets to the original amount. Startups might be more likely to qualify for a secured line of credit, which requires collateral to back it.

• Equipment financing: If you need specific equipment to operate, your startup can pay for it using a loan secured by the item itself. Equipment financing can prevent a big purchase from disrupting your cash flow.

• Invoice financing: Your startup might also experience cash flow gaps when billing cycles are long and customers can take up to 90 days to pay you. Invoice financing provides a cash advance of up to 90% of your unpaid invoices' value. The process is quick but can come with higher fees than a traditional loan.

What factors do lenders consider in Australia?

While each type of startup business loan in Australia has its own requirements, most lenders consider the following factors:

• Trading history: Some types of funding, including term loans from banks, require your Australian Business Number (ABN) to have been registered no more than two years ago. Certain government loans for startups also expect that you've been in business for a maximum of two years. Lenders might also require you to have a minimum amount of trading history, such as four months or 12 months for an unsecured fintech loan.

• Revenue: Lenders could also have minimum monthly or annual recurring revenue (ARR) requirements. While you do need steady revenue, you don't need to be profitable.

• Credit history: Banks will consider your personal credit score, and those with lower scores might only qualify for a secured loan. Nonbank lenders often use cash flow, revenue, and trading history as eligibility requirements rather than credit score.

• Business model viability: Certain lenders might require a business plan or cash flow forecast to demonstrate your ability to repay the loan

How do startup loans vs. other funding options differ?

Debt-based financing such as a business loan isn't the only way to make use of external funding. Here are some other options:

• Grants: Startup grants don't need to be repaid and don't require you to give up equity in the business. But they are competitive and have strict deadlines. Government grants are available at the federal, state, and territory level. You can also find grants for particular industries or for women- or First Nations-owned startups. Some are in-kind grants, meaning they provide a service instead of direct funding. Others might come in the form of matched funding; once your business raises a certain amount in funds, the grant provides the same amount.

• Venture capital: Equity investment from venture capital (VC) firms requires you to give up partial ownership and control of your startup. It can be a significant source of funding for promising early-stage, high-growth companies. VC firms also offer strategic advice and industry connections.

• Revenue-based financing: If your startup already has paying customers, you can also seek capital through revenue-based financing. The loan is tied to your sales history, and you'll pay it back as a fixed percentage of daily revenue. Payments go up as sales increase and down as they decrease. Revenue-based financing is best for businesses that can't qualify for traditional term loans, need capital fast, and have variable sales.

How does funding drive business growth for startups in Australia?

Funding can help grow your business by letting you invest in important areas:

• Hiring: Growing your startup requires transitioning from a few generalists on staff to multiple teams with specific expertise. You'll need runway so that you can maintain cash flow while recruiting employees, offering competitive salaries, and making payroll.

• Inventory: Stock can take months to arrive after purchase. Suppliers typically require a significant upfront payment, with the rest due at shipment. External funding lets you pay for inventory that could take a long time to arrive without clearing out your available capital. Also, if you buy a lot of stock at one time, you could get discounted rates.

• Marketing: Organic revenue alone might not be enough to pay for marketing efforts that expand your startup's reach. External funding could finance a marketing budget that builds your brand, grows customer awareness, and facilitates your move into new markets.

• Technology investment: Some industries, such as clean energy and health care, require extensive investments in research and development. Your startup might need to create and test prototypes or minimum viable products (MVPs) long before it earns revenue. Funding can provide a lifeline during the early stage of a product's buildout.

How Stripe Capital can help

Stripe Capital offers financing solutions to help your business access the funds it needs to grow.

Capital can help you:

• Access growth capital faster: Get approved for a flex loan, line of credit, or merchant cash advance in minutes – without the lengthy application process and collateral requirements of traditional bank loans

• Align financing with your revenue: Capital's flexible structure means you pay a fixed percentage of your daily sales, so payments scale with your business performance. If the amount that you pay through sales doesn't meet the minimum due each payment period, Capital will automatically debit the remaining amount from your bank account at the end of the period.

• Expand with confidence: Fund growth initiatives such as marketing campaigns, new hires, inventory expansion and more – without diluting your equity or personal assets.

• Use Stripe's expertise: Capital provides custom financing solutions informed by Stripe's deep expertise and payment data.

Learn more about how Stripe Capital can fuel your business growth, or see if you are eligible today.

FAQs about startup business loans in Australia