Funding a start-up: savings, loans, grants and investors

General information only. This guide is general information, not financial, legal or tax advice. It doesn't take your circumstances into account. For advice about your situation, talk to a licensed professional.

In short

Work out how much you actually need first - start-up costs plus the biggest gap in your cash flow forecast, plus a buffer.
The cheapest money is your own and your customers'. Pre-sales, deposits and starting small reduce how much you need to raise.
Loans keep you in control but must be repaid regardless of how the business goes; investors share the risk but take a share of the business.
Grants exist but are usually for specific purposes, competitive, and rarely cover day-to-day start-up costs.
Put every arrangement in writing - including money from family and friends.

Step 1: Work out how much you need

Before looking for money, know the number and be able to explain it. You need:

Start-up costs: everything you spend before you open (equipment, fit-out, stock, bonds, registrations, website, launch marketing), plus a 10–20% contingency.
The cash gap: the lowest point in your 12-month cash flow forecast, when costs are running and sales are still building.
A buffer: one to three months of fixed costs, because things rarely go exactly to plan.

Our guide to financial planning and cash flow shows how to build these numbers. Asking for too little is as risky as asking for too much: running out halfway is one of the most common ways new businesses fail.

Step 2: Reduce what you need

Every dollar you don’t need to raise is a dollar you don’t pay back or give away.

Start smaller. Test from home, a market stall, a shared kitchen or a coworking desk before signing a lease.
Lease or buy second-hand equipment instead of new.
Take deposits or pre-sales. Customers paying up front is the cheapest funding there is.
Keep your job a little longer, or go part-time while the business builds.

Your funding options

Your own savings (“bootstrapping”)

Most small businesses start this way. You keep full control and owe nobody.

Watch for: putting in more than you can afford to lose. Decide in advance how much you’ll invest, and the point at which you’ll stop and rethink.

Customers: deposits, pre-sales and early revenue

Asking customers to pay a deposit, pre-order, or pay for a first small job proves demand and funds growth at the same time.

Family and friends

Often the most flexible money, and the most likely to strain a relationship if things go wrong.

Put it in writing: whether it’s a gift, a loan (with repayment terms) or a share of the business. A short written agreement protects everyone.
Only accept what they can genuinely afford to lose.

Business loans

Banks and non-bank lenders offer loans, overdrafts and equipment finance.

How it works: you borrow a set amount and repay it with interest over an agreed time, whether or not the business does well.
What lenders usually look at: your business plan and forecasts, your credit history, your own contribution, any security (such as property or equipment) and your experience.
Personal guarantees: even for a company, lenders often ask the owner to personally guarantee the loan. Understand exactly what you’re signing.
Be careful with fast, easy, unsecured business finance and products repaid as a share of daily card sales. Compare the total cost, not just the repayment.

business.gov.au has a guide to preparing a loan application. A financial counsellor or your accountant can help you understand an offer before you sign.

Grants and government programs

Grants are usually tied to specific goals (such as exporting, innovation, regional development or recovering from a disaster), are competitive, and often require you to contribute your own money too. They rarely fund general start-up costs. See Government grants and free support.

Crowdfunding

Rewards-based crowdfunding: people pre-pay for your product or a reward through a crowdfunding platform. It works best for a product with a clear story and a ready audience, and it doubles as a test of demand.
Crowd-sourced equity funding: eligible companies can raise money from many small investors in return for shares, through an intermediary licensed by ASIC. It involves disclosure documents and ongoing obligations.

Angel investors and venture capital

Investors put in money in exchange for a share of the business.

Angel investors are usually experienced individuals investing smaller amounts, often with advice and contacts.
Venture capital suits a small number of high-growth businesses, typically technology, aiming to scale quickly.
The trade-off: you don’t repay the money, but you give up part of the ownership and some control, and investors expect a significant return.

Some examples in Australia. To get a feel for what investors look for, browse a few of their websites. These are examples only, not recommendations, and each has its own criteria:

Angel investor groups: Sydney Angels, Brisbane Angels, and Scale Investors, which backs female-founded businesses.
Venture capital funds: Blackbird, AirTree and Square Peg, which mostly invest in technology businesses aiming to grow quickly.
Accelerators: programs such as Startmate invest a small amount and offer mentoring, usually in exchange for a share of the business.

Before you take investment, get advice from an accountant and a lawyer on the terms, and understand exactly what share and control you’re giving up.

Comparing the main options

	Keeps full ownership?	Must be repaid?	Speed	Best for
Own savings	Yes	No	Immediate	Most start-ups
Customer pre-sales	Yes	You deliver instead	Fast once you have buyers	Products and services with proven demand
Family and friends	Depends on the agreement	Depends on the agreement	Fast	Small amounts, with everything in writing
Loan	Yes	Yes, with interest	Weeks	Businesses with predictable income or security
Grant	Yes	Usually no (conditions apply)	Slow, competitive	Specific eligible projects
Crowdfunding	Rewards: yes; equity: no	Rewards: deliver; equity: no	Weeks to months	Products with an audience
Investors	No	No	Slow	High-growth businesses

How to prepare before you ask

A clear, short business plan with realistic numbers. See How to write a business plan.
A cash flow forecast for at least 12 months, with a slower “what if” version.
Evidence of demand: customers, pre-orders, letters of intent, test results.
Your own contribution. Lenders and investors want to see you have money at risk too.
Tidy records: separate bank account, up-to-date bookkeeping, tax lodgements current.

If money gets tight

Act early. The Small Business Debt Helpline (1800 413 828) offers free, confidential financial counselling for small business owners and sole traders, and doesn’t sell any products. Talk to your accountant and your lender before you miss a payment, not after.