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.


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:


  • Fund start-up costs which can be considerable
  • Grow your business faster
  • Have access to money when you need it


  • You may feel anxious about taking a loan so early in your business and worried about failure
  • You may not feel confident enough to predict your cash flow and know you’ll feel comfortable making repayments
  • A loan appears on the liability side of your balance sheet so it affects the valuation of your business
  • You may not be able to borrow as much as you’d like without having fully ramped up your sales.

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:

  • Unsecured loan: The lender doesn’t ask for collateral to secure the loan; it’s based largely on the credit and financial standing of the borrower.

  • Secured loan: Collateral such as commercial or residential property is required to secure the loan. It typically involves a higher loan amount, but you risk losing your property if you default on the loan.

  • Low doc loan: This is for business owners without the necessary documentation, for example if you’ve only been trading a short while and lack years of tax returns or proof of consistent cash flow. These loans can be tricky to secure.

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:

  • You can customise your offer to match your vision. For example, you can borrow from $100 up to your maximum loan offer.
  • You’ve got 18 months to repay the loan in full, and just need to make sure you pay the minimum required every 60 days.
  • Repay as you trade with daily deductions – pay more when sales are up, less when sales drop and never when you’re closed.
  • 0% interest rate. Instead, pay one flat fee.
  • No credit checks required.
  • No security required on loans under $75K.
  • Get your loan in days not weeks, if approved.
  • Loans between $100 and $250,000 available.
Square Loans

The next move is yours with a small business loan.

Things to consider before you apply

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

  • What do you need the loan for?
  • How much do you want to borrow?
  • Can you afford the repayments?
  • What is the cost of funding?
  • Are you required to offer a personal guarantee?

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

  • Do create a budget with real figures. Understanding your cash flow and how much you feel comfortable borrowing is essential.
  • Do have extra funds – a little extra in the bank can help you ride out those months before you’re profitable and can get a loan.
  • Don’t underestimate your expenses – no matter how meticulous you are, things get forgotten or cost more than you expect, so consider adding another 25% to your estimates.
  • Don’t overestimate your income – income can be hard to predict in that first year of business.
  • Don’t stress about your finances – it’s hard, we know, but you need to believe in your vision if it’s to succeed. Concentrate on building the business and bringing in the sales that first year.

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.

  • The Square Loans Australia Survey statistics are based on an online survey of 467 Australian small business owners over the age of 18, conducted between April 3 and 8 2022 by Block, Inc., Squareup Pte. Ltd. Results are representative of Australian small businesses in line with the number reported by the Australian Bureau of Statistics Counts of Australian Businesses, including Entries and Exits August 25 2022. The study has an overall margin of error of ±6% at the 95% level of confidence.