Financing options for new Australian businesses

Starting a small business can be a challenging task, especially when it comes to financing. In Australia, there are several options for financing a small business, including business credit cards, small business loans, government grants/R&D tax incentives, crowdfunding, peer-to-peer lending, and other alternative financing options.

Each financing option has its pros and cons, and it's essential to weigh them carefully before making a decision. So if you are starting up a new business, here are some of the best financing options available.

Key takeaways

1.        Business credit cards can be a flexible financing option for small businesses, but it's important to use them responsibly and pay off the balance in full each month.

2.        Small business loans can provide funding for a variety of purposes, but it's important to carefully consider the loan amount, interest rate, and repayment terms before applying.

3.        Government grants and R&D tax incentives can provide significant financial support to small businesses, but the application process can be complex, and it's important to carefully review the eligibility criteria and application requirements before applying.

Business loans

Small business loans are a common financing option for small businesses in Australia. They can provide funding for a variety of purposes, including purchasing equipment, hiring staff, and expanding operations. Business loans can be secured or unsecured, and the interest rates and repayment terms will vary depending on the lender and the type of loan. It's important to carefully consider the loan amount, interest rate, and repayment terms before applying for a loan, and to have a solid business plan and financial projections in place.

Finty have reviewed many of the available small business lenders, links to which you can find on their business loan comparison table.

Peer-to-peer lending

Peer-to-peer lending is another financing option that has gained popularity in recent years. It involves borrowing from individuals or groups of investors rather than traditional lenders. Peer-to-peer lending can offer several benefits, including lower interest rates than traditional loans and more flexible repayment terms. It can also be a good option for small businesses that have difficulty accessing traditional financing.

To obtain peer-to-peer lending, businesses typically apply through an online platform, which matches borrowers with investors. The platform may charge a fee for its services, and borrowers will need to provide information about their business and financial history to be considered for funding.

Moneysmart have a useful guide to P2P lending (although it is largely focussed on the investor side).

Crowdfunding

Crowdfunding is an increasingly popular financing option for small businesses in Australia. It involves raising funds from a large number of people via an online platform. Popular options include Kickstarter and the Australian-owned Pozible. Crowdfunding can be an effective way to raise funds quickly and to gauge market interest in your product or service. It also provides an opportunity to engage with potential customers and build brand awareness. However, it's important to note that crowdfunding is not a guaranteed source of funding, and it can be time-consuming and challenging to create a successful campaign.

There are different types of crowdfunding, with rewards-based and equity-based being the most widely used. Rewards-based crowdfunding involves offering backers a reward or perk in exchange for their support, such as a discount on a product or service. Equity-based crowdfunding involves selling a portion of your business to investors in exchange for funding.

Government grants and tax incentives

Small businesses in Australia can also access government grants and R&D tax incentives to support their operations. The Australian government provides a range of grants and incentives for small businesses, including funding for research and development, exporting, and innovation. There’s a handy grants and programs finder that makes it easier to see what your business may be eligible for.

R&D tax incentives can help to offset the costs of developing new products or services and can provide a significant financial boost to small businesses. However, the application process can be complex, and it's important to carefully review the eligibility criteria and application requirements before applying.

Business credit cards

Business credit cards can be an excellent financing option for small businesses that need to make purchases or manage expenses. They offer flexibility and convenience and can help to separate personal and business expenses. Business credit cards can also provide rewards and benefits such as cashback, travel rewards, and insurance coverage. However, it's essential to use business credit cards responsibly and pay off the balance in full each month to avoid high-interest charges and fees.

Note that the most rewarding business credit cards — as you can see with Finty’s comparison of business credit cards— are issued by American Express. Check if the suppliers and partners your business works with can accept Amex. If they do not, you can get around the problem by using a payments platform such as B2Bpay or RewardPay.

Another issue to be aware of with business credit cards is eligibility. If your business has no established trading history, it will be difficult to get approved, especially for the more rewarding offers. You may need to wait until you have been trading for a couple of years before you can realistically expect to be approved.

FAQs

Can I use a personal credit card for business expenses?

While it's possible to use a personal credit card for business expenses, it's generally not recommended. Using a personal credit card for business expenses can make it difficult to separate personal and business expenses, and it can also make it harder to track expenses and manage cash flow.

What is the interest rate for a small business loan?

The interest rate for a small business loan will vary depending on the lender and the type of loan. Secured loans typically have lower interest rates than unsecured loans, and the interest rate may also be affected by factors such as the borrower's credit history and the length of the loan term.

What is the application process for a government grant or R&D tax incentive?

The application process for a government grant or R&D tax incentive can be complex, and it's important to carefully review the eligibility criteria and application requirements before applying. The application process will typically involve submitting a detailed application outlining the business's operations as well as current and forecasted financial position.