Borrowing in Your First Year of Business

Borrowing in Your First Year of Business
Discover ways to borrow in your first year of business. Learn how taking out a loan can help grow your business faster
by Square Feb 02, 2023 — 5 min read
Borrowing in Your First Year of Business

Running your own business is a pathway to financial independence and realising your dreams. At some point, you may need additional funds to get your new venture off the ground. If you’ve got savings, these might bootstrap you through those early months but if not, you could consider a business loan.

Borrowing in your first year of business can be daunting, particularly when you’re so new to the market. You’re not alone, with 79% of small business owners feeling uncomfortable taking on debt in their first year compared to 70% for seasoned business owners (who have been in business for 6 years+). But a small business loan could be the boost you need to take things to the next level – employ more staff, rent commercial premises, buy much-needed equipment, pay for key business services, purchase more stock or launch an essential marketing campaign.

Many first-year business owners worry that even if they do take the plunge, they’ll be turned down – just 14% have confidence they’ll be approved for a loan compared to 31% for those who’ve been in business for six years or more.

Types of funding you can receive in your first year of business

Credit card

A credit card is one of the easiest ways for businesses to secure finance, but depending on your situation can also be one of the most risky. With potentially high interest rates and small interest-free windows, if you aren’t savvy with your repayments you may get into a tricky situation. However, if you are able to make the most of interest-free windows or stay up to date with your repayments alongside a stable income, a credit card could be a great option for you.

Overdraft

A bank overdraft is a line of credit that covers your transitions if your bank balance falls below zero. Think of it as a revolving loan that allows you to draw on funds up to a pre-agreed credit limit. It’s important to note that there are fees associated with overdrafts and interest on the loan, but the interest is normally only paid on funds used.

Square Loan

If you’ve been selling with Square for six months or more, you may be eligible to apply for a Square Loan. The beauty of Square Loans is that they’re based on your sales, rather than any personal financial history.

Angel investment

An angel investor is someone who invests money into a business that they do not own. Funding is normally provided for a stake in the business. They tend to focus on promising early-stage startup businesses, but can also come in the form of family or friends.

Pros and cons of borrowing in your first year of business

With any business decision, there are upsides and downsides. Taking on funding can mean a welcome cash injection, but there’s always risk involved. Be sure you’re at a stage in your business journey where you need to borrow and feel comfortable borrowing.
Take on too little debt in those first few months and you might not have enough cash to realise your business’s full potential. Take on too much and you may be struggling to make repayments if the business experiences a downturn.

Weigh up the pros and cons before you commit:

Pros

Cons

Where do I get funding?

In an ideal world, we’d all have a rich aunt to lend us the money, interest free with no strings attached! But for most of us, the first port of call is a commercial lender. This could be your bank or a specialist business lender.

Think about the type of loan to apply for:

Square Loans

If you’ve been selling with Square for six months or more, you may be eligible to apply for a Square Loan. The beauty of Square Loans is that they’re based on your sales, rather than you credit score.
Square looks at your daily sales figures and uses its algorithms to make your business a loan offer when you become eligible.

There are advantages to this over a traditional bank loan:

Things to consider before you apply

Before considering any type of finance, ask yourself several key questions:

Here are some dos and don’ts to follow too:

Remember, Rome wasn’t built in a day, and building your business takes time too, but you can do it. Don’t be afraid to look for outside finance to help you realise your dream – with Square Loans, get the cash you need to drive your business forwards into profit and success.

This article is only for educational purposes and does not constitute legal, financial or tax advice. Make sure you consult a professional regarding your unique business needs.

All loans are issued by Square AU Pty Ltd. (ABN 38 167 106 176). Valid Australian bank account is required. Actual fee depends upon payment card processing history, loan amount and other eligibility factors. A minimum payment of 1/18th of the initial loan balance is required every 60 days and full loan repayment is required within 18 months.

Loan eligibility is not guaranteed. Eligibility criteria include consistent and continuous payment card processing through Square. All loans are subject to credit approval. Terms and conditions apply.

Square
The Bottom Line is brought to you by a global team of collaborators who believe that anyone should be able to participate and thrive in the economy.

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