When to take on your first business loan, and when to wait

There’s no perfect month to borrow for the first time. Take a loan too early and you risk repayments before the business is steady. Wait too long and you might lose the job, the stock, or the lease that would have made the business.

The better approach is to run a handful of tests. If the answers are clear, the timing usually is too. This guide gives you six, then shows what a lender will see when you apply and what to do if the answers say “not yet”.

Test 1: Does the money buy something that earns?

The cleanest reason for a first loan is that the borrowed funds produce a return you can name. A van that allows two extra jobs a day. Stock for a confirmed order. A piece of equipment that unlocks work you are turning away.

Write the sentence: “If I borrow $X, I will be able to do Y, which brings in $Z a month.” If you can’t complete it with a figure you believe, you may be borrowing to feel safer rather than to earn.

Loans that go to wages, rent or other ongoing costs when sales are falling are the opposite. They can be legitimate for a timing gap, but they don’t create the income to repay them. See how to avoid panic borrowing if that is closer to your situation.

Test 2: Could I make repayments in my slowest month?

Average income is a poor guide. Pick your slowest month in the last year and ask whether takings covered the business’s costs, your own living costs and the new repayment.

You can work out the repayment with the business loan repayment calculator. Lenders do a version of the same test and call it serviceability; our glossary entry on serviceability explains how.

If the loan only works in a good month, shorten the term to reduce risk, lower the amount, or wait.

Test 3: How much track record do I have?

A first loan is shaped by trading history more than anything else. Roughly:

Trading history	What tends to be available
Under 3 months	Mostly asset-secured loans, or borrowing against property you own
3 to 12 months	Some online and non-bank lenders will look at takings, usually for smaller amounts
12 to 24 months	Wider choice, including larger unsecured amounts and bank lending in some cases
2 years or more	Full range, with banks often the cheapest option if you fit their criteria

This is a general pattern, not a promise, since every lender has its own policy. Our pages on loans with an ABN under 12 months and the first business loan go through what each type of lender looks at.

An important lever is keeping business and personal money separate. Lenders read your statements closely, and a clean trading account with regular deposits makes your case. Mixed accounts make it harder.

Test 4: What is my exit?

Every loan ends in one of three ways: you repay it from earnings, you refinance it, or you sell something. Know which before you sign.

• Repaid from earnings. Standard for term loans. Make sure the term matches the life of what you’re buying.
• Refinanced. Common for short-term loans taken early in a business’s life, expecting a cheaper lender once there’s more history.
• Repaid from a sale or event. For a bridging loan, a property sale or a settlement. See our guide on exit strategies for short-term loans.

“I’ll work it out later” is not an exit.

Test 5: What does it really cost?

Compare in total dollars, not headline numbers. Add the establishment fee, ongoing fees, any early repayment charge, and the repayments over the term. Our guide on business loan costs and fees lists what to look for.

A first loan that costs more per dollar than a later one isn’t necessarily a mistake. If it earns more than it costs and builds your record, the extra can be worth it. It is a mistake if you don’t know the total.

If you’re still working out how much a loan would add to your monthly costs, send us the amount and purpose and we’ll tell you where it is likely to land.

Test 6: What’s my fallback if it goes wrong?

Ask what happens if sales fall 20 per cent for a quarter. Do you have a buffer, a second income, or costs you can cut? And look at what you’ve pledged. Business.gov.au notes that lenders may ask for personal financial information, and many first loans for small companies involve a director guarantee. Our guide on personal guarantees explains what that exposes.

If failure would put your home at risk and the loan is for something unproven, that’s a strong reason to wait or borrow less.

What are the signs I’m borrowing too early?

• You’re borrowing to find out if the idea works.
• The first customer hasn’t paid yet.
• Repayments only work if sales double.
• You’re borrowing to pay another debt without a plan to fix the cause.
• The deadline is something you created, not something the business imposed.

And the signs I’ve waited too long?

• You’re turning away work you could do with one purchase.
• A supplier offers a discount for stock you can’t afford.
• You’re paying heavy interest on credit cards for things a proper loan would fund more cheaply.
• Growth is stalling because you’re using your own wages to fund the business.

A worked example

This is a made-up case. A mobile mechanic has traded for 14 months, earning roughly $11k a month in takings with a low of $8.5k. They want a $38k service van fit-out to take on fleet customers, which two local businesses have said they would sign.

• Test 1: A fleet contract is estimated at $3.5k a month extra margin. Yes.
• Test 2: The repayment on a four-year loan is about $1k a month. In the $8.5k month, costs and living expenses leave room. Yes.
• Test 3: 14 months of statements. Good enough for several lenders.
• Test 4: Repaid from earnings, with refinancing possible later.
• Test 5: The mechanic compares two offers in dollars.
• Test 6: Contracts could slip; a $6k buffer covers two months of repayments.

The result: borrow, and keep the amount modest. If the contracts weren’t signed yet, they might delay the fit-out until a letter of intent arrived.

Ready to find out where you stand?

If you’ve worked through the six tests and the answer looks like yes, or even maybe, a short conversation can sharpen it. Our enquiry form takes about a minute. Hitting send won’t prompt a credit check, so your score stays where it is.

No long list of lenders gets your enquiry. Someone here reads it properly and calls with a view on what suits. The more candid you are about trading history, the purchase and the deadline, the sooner we can name the right fit.

Check where I stand →