Borrow personally, for the business
Your business may have no track record, but you might: a steady income, a good credit history, or a car or home you could offer as security. That can make you a much better borrowing prospect than the business, possibly for an unsecured personal loan.
Work out how much you need
Don't underestimate what it takes to launch and to keep going until customers start paying. Cash flow problems are a leading cause of small business failure. Costs to plan for include:
- Staff, stock and equipment.
- Marketing, including a website.
- Phone, internet and software.
- Business insurance, licences and registration.
- Rent and fit-out of any premises.
Compare before you borrow
Compare loans from more than just your own bank. Look at:
- The interest rate, and whether it's fixed or variable.
- Establishment and ongoing fees.
- Any fee for paying the loan off early.
Tell the lender what it's for
Some personal loans can't be used for business, so check first. If the lender asks, be upfront about your plans. A record of repaying on time also helps when the business later applies for its own loan.
Recording the loan in your books
Deposit the money into your business account and record it as owner's equity if you're a sole trader, or as a shareholder loan or equity if the business is a company. Your accountant can help set this up.
Another option
With an ABN you can apply for a business credit card, which can help with smaller startup costs if you can repay quickly. The interest rate is usually much higher than a personal loan's.