Starting a business is no easy feat. Every year, tens of thousands of people step up to the challenge. Yet 97 per cent of Australian businesses fail. One of the most common reasons is from lack of planning. As all business owners know, it takes hard work to sustain a profitable venture and it doesn’t always come cheap, writes Jayde Walker.
Luckily the rewards are worth the sweat and tears. Flexible schedules, working on your own terms and personal fulfilment are some of the perks. Without a budget and plan though, it can be more stressful than successful.
Whether you’re swapping the day job for self-employment or your business has been established for a few years, you might consider taking out a loan to fund growth and other projects.
Cash flow is often a significant issue for sole traders and small business owners. While a personal loan can be the easiest way for getting those much-needed funds, it’s only practical if you can make the repayments and interest rates aren’t too high.
Here are some ways you can use a personal loan for your small business
Personal vs Business Loan
Business loans are more suited if your business is set up as a company.
For smaller businesses, personal loans can be easier to obtain and can still be used for operational activities. Unlike business loans, you won’t have to submit a business plan but you’ll need to tell the lender what the loan will be funding.
Unsecured personal loans have no risk to personal assets and give you greater control over repayments. While many types have lower interest rates than a credit card, some lenders may charge more given that an unsecured loan doesn’t have security.
As with any type of loan, it’s important you take out the right one for your needs to minimise ongoing and future costs.
Do this by:
- Borrowing only what you need (and what you can afford to pay back)
- Researching and comparing lenders and loan types eg: unsecured vs secured loans
- Thinking the decision through
- Seeking financial advice
- Understanding the loan terms
- Budgeting for repayments and long-term costs
- Planning how you’ll use the money
- Only borrowing to build your business
- Knowing all the features and costs
1. Powering Up Your Business
It can cost anywhere from $3,000 to $5,000 to start a small business. Some could expect to pay up to $10,000, depending on the structure and industry.
New businesses can have a hard time getting a business loan because lenders prefer you to be in business for a minimum of two years. If you’re only borrowing a small sum and lack the business assets as personal collateral, a personal loan can provide flexibility to a low revenue startup.
Some costs to budget for include:
- Setting up a website (invest resources for design and optimised copy)
- Equipment and/or stock purchases
- Industry-specific licenses or permits
- Hiring staff
- Taking out insurance
- ABN and business name registration
2. Paying for Education
Even the most skilled business owners need to keep their finger on the pulse.
If you want to upgrade your skills or learn new tricks, extra funding can help further your education. Upskilling gives you a competitive edge and builds confidence in trying times. Identify your skill gap and invest the time, motivation and resources to learn. Building your expertise can also offer a valuable return of investment and increase customer and client satisfaction.
3. Funding a Business Car
You may need a car for work if you’re in the trades or consulting industry. Small businesses with a turnover of less than $2 million can benefit from tax breaks for cars under $20,000. This Government scheme allows you to claim the entire cost of your purchase, whether you buy new or used.
Follow these tips if you’re considering a business car:
- Weigh up all costs such as total price, insurance, maintenance, fuel and repayments
- Prioritise fuel economy
- Choose size carefully
- Review your options
4. Financial Support During the Startup Stages
The first 12 to 18 months are the toughest for new businesses.
It’s not only budgeting for business adventures, but your lifestyle and personal needs too. Laying down a strong foundation for a sustainable startup is the first step. Make sure you prioritise cash flow, establish realistic financial goals and focus on customer acquisition. Once you choose what platforms you’ll reach them, work on optimisation to lower costs and streamline your time.
Keep your expenses low by:
- Only hiring people you need
- Using contractors and/or freelancers where possible
- Working from home vs renting an office space (if your business type is suitable)
- Reinvesting back into your business
- Tracking all spending and incoming money
- Paying yourself first
- Buying less
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