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Business loans for startups in 2020

3-minute read

COVID-19 has changed the business lending landscape – but how have startups been affected? Learn more about financing options for your new business.

Key take-outs
  • In recent months, the business lending landscape has been strongly focused on COVID-19 support to help affected businesses
  • Stay up-to-date on the developing situation in your state or territory
  • As a result, requests for startup loans may have subdued in the short term – but could bounce back in the medium to long term as the economy slowly recovers
  • If you aren’t eligible for a startup loan right now, there are other potential financing options available to help you manage cash flow and finance growth for your new business

COVID-19 has fundamentally changed the business lending landscape, but what does that mean for new startups? We look at the state of loans for new businesses in 2020, including financing options and eligibility criteria for startups.

The state of startup lending amidst COVID-19

As Australia goes through a period of economic 'hibernation', many businesses have reported negative financial consequences as a result of the COVID-19 pandemic. 

 

So, according to Startup News, lending for new businesses has taken a backseat while banks and lenders manage a great wealth of requests for loan repayment deferrals and new working capital for businesses looking to bridge gaps in cash flow. Furthermore, the current uncertainty around the wider economic outcomes of the pandemic may present challenges in predicting new businesses’ ability to service their debts.

 

In the medium- to long-term, however, startup lending may be more likely to pick up momentum again as the economy begins to recover and the backlog of debt deferral requests subside.

 

When assessing startup loan applications, lenders may look at:

 

  • Whether you can afford the loan: For new businesses, this means being able to demonstrate how you intend to get the cash flow you need to make repayments on your loan.
  • Whether you can secure the loan with an asset: You may be able to increase your chances of approval if you can use an asset, such as property, as security for your business loan.
  • Your business and personal credit history: All your credit activity, including your loan details, repayments and overdue accounts, may be kept on file for five years, and lenders may use this information to assess whether you’re credit-worthy.

 

Applicants more likely to be successful are those who can demonstrate a sound business plan and the ability to service their loan.

What other financing options are available for startups?

Even if you aren’t eligible for a new business loan at the moment, there are several other potential ways to help you manage cash flow and finance growth for your new business, such as:

 

  • Business credit cards: Cover everyday business expenses and short-term costs with a credit card.
  • Business vehicle and equipment finance: Borrow money specifically to buy, lease or hire a vehicle or equipment for your new business.
  • Business overdrafts: Access extra cash when you need it through a line of credit linked to your business transaction account.
  • Government grants: Apply for business funding through a government grant program. COVID-19 recovery grants are available in some states and territories – check your state government website for details.
  • Equity finance: Create a compelling business proposition to attract multiple investors or donations from private sources, such as angel investors, venture capitalists or even future employees.

 

It can be tricky to wrap our head around loans and financing when you’re starting out in business, so it’s a good idea to chat to a lending specialist who can help you understand what you may be eligible for. 


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Things you should know

This information does not take into account your personal circumstances and is general. It is an overview only and should not be considered a comprehensive statement on any matter or relied upon. Consider obtaining personalised advice from a professional financial adviser and your accountant before making any financial decisions in relation to the matters discussed in this article, including when considering tax and finance options for your business.