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Three startup finance myths that need to be busted

By Cathy Wever

2 min read

Don’t be fooled by common myths around how and where to access startup business finance – like most myths, chances are they’re probably not true.

Here are three of the top startup finance myths debunked.

1. You cant access business finance if you have existing debts

Most new businesses owners need an injection of capital to make their business idea a reality. Taking out a business loan (as opposed to having an investor contribute funds) lets you retain control over the way your business runs. In addition, interest payments on business loans are generally tax deductible, meaning they make good financial sense while also offering your business the chance to get off the ground.

Borrowing money when your business is in its earliest days can be nerve-racking, but what about if you have existing debts? Will anyone even be willing to lend business finance to you?

While some may think the answer is ‘no’, many lenders do provide business loans to people with existing debts. This is because lenders generally consider other factors first when deciding whether or not to offer business finance. These include your industry track record, business plan and the industry or sector your new venture will operate in.

2. Don’t borrow money from family

Mixing business and family might sound like a recipe for disaster, but according to a recent University of Adelaide study, the opposite is true. With startup finance from banks often expensive or hard to come by, the research revealed 83 per cent of Australian entrepreneurs receive funds from a friend or family member to start up their business.

Study author Dr Gary Hancock found that, contrary to popular belief, the experience of borrowing from family or friends was generally positive.

“Within-family financing doesn’t often cause issues within the family, even if the business doesn’t succeed,” he says. “People who engage in this particular entrepreneurial behaviour show a high level of care towards their relationships, a strong sense of the future and a determination to achieve. Therefore entrepreneurs often work hard to succeed and repay the family financier.”

3. Government financial support is available for startups

The government likes the idea of Australians starting up their own businesses. An entrepreneurial spirit not only fits with our national psyche, it also has the potential to help generate jobs and contribute to a strong economy.

Yet despite the enthusiasm, the federal government offers little direct monetary support for startup businesses. You can search the government’s online resources for setting up a small business, and you can access information on opening a business bank account, bookkeeping, sourcing finance, managing cash flow and more. In this years federal budget small businesses were granted tax deductions for buying individual assets under $20,000. The tax rate for small business has also been lowered by 1.5%. While these tax changes will benefit small businesses, specific grants for startup businesses are limited to a few specific industries, such as primary production.

Research is vital when it comes to startup business finance, and as the busted myths here reveal, you’ll need to get your facts straight to access the funds you need.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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