Banks strive to paint themselves as an ally of Australian entrepreneurialism and every major bank will have a dedicated small business unit.
However, banks are inherently cautious. Risk aversion is hard-wired into all successful banks and this means that start-up businesses are often last in the line when money is being handed out.
Banks generally like to see around three years of proven business success before lending substantial amounts of money. This caution has become even more entrenched in the wake of the global financial downturn.
“It’s tough to get funding from banks at the moment,” says Paul Clements, principal of business advisors Clements Dunne & Bell. “We are seeing the effects of the GFC more than we were 18 months ago. It’s as hard now, if not harder, to secure funding than it was 12 months ago. You have to be aware of the challenges.”
However, don’t let this put you off. Most start-up businesses still turn to banks for funding, and with good reason. Almost all banks will have a small business advisor who you will be able to talk to in order to see whether your idea could be backed by funding.
Be aware that any bank you go to will want you to fulfill what is know as the ‘three Cs’ – character, cashflow and collateral.
In practice, this means that they’ll want to know if you are skilled and experienced enough to make your business a success. They will assess whether your cashflow will be sufficient to cover the repayments of the loan and, finally, what you are offering as security on your loan.
Typically, start-up businesses will offer their houses up as collateral. However, make sure that you have thoroughly a planned, researched and costed proposal before you even consider putting your house on the line. How sure are you that the business will succeed? How committed are you to working extremely hard, initially for very little to no return, to meet the repayments?
Finally, you will want to shop around for the best interest rate, rather than just the one offered by your existing bank. Several online tools allow you to do this, such as this one – https://www.infochoice.com.au/small-business/banking-loan/business-loans.aspx
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