How much money you actually need to start a business

Enough to pay everything the business owes before it pays you, and then a buffer on top — the part most people leave out. Add the one-off set-up costs to the monthly running costs, multiply by the months until revenue is steady, then add more months than you think you need. Businesses rarely fail on a bad idea; they run out of money first.

The sum nobody does properly

There is no single number, and anybody who gives you one is guessing. What there is, is a calculation, and it has three parts. The one-off costs to open the doors: registration, equipment, fit-out, stock, insurance, the deposit and the first month on a lease. The monthly cost of running once you are open: rent, wages and super, materials, software, fuel, accounting, and your own household bills, because those do not pause while the business finds its feet. And the number of months between opening and the point where money coming in reliably covers money going out.

Multiply the second by the third, add the first, and you have the honest minimum. Then add more, because the third number is the one everybody gets wrong. A new business does not get paid the day it invoices. It gets paid thirty or sixty days after that, if the customer is good, and the wages went out in the meantime. Money leaves a new business earlier than most owners expect: GST registration is required once turnover reaches $75,000, PAYG withholding starts with the first employee you pay, and super guarantee runs at 12% of ordinary time earnings. From 1 July 2026 a contribution has to reach the fund within 7 business days of payday — 20 business days for the first contribution for a newly engaged employee — so super is no longer a quarterly problem that can be pushed to the end of the quarter.

Most people ask their bank first

And the bank usually says no, which surprises people who have banked there for years. It is not a judgement on the idea. A bank lends against serviceability it can see in numbers, and a business with no trading history has no numbers — no two years of financials, no turnover, no tax returns for an entity that did not exist last June. The answer would be the same if the plan were excellent.

That gap is where HomeSec has been since 2004, and we are not here to judge the situation, just to find a solution. What we look at is whether there is sufficient equity in real estate and whether the purpose is a genuine business one. Not financials, not lodgements, not a credit score, and no interrogation about how you got here. From a clean, complete scenario funds can be available in as little as 24 hours, and interest can be capitalised for up to six months, so there is nothing to pay while the business gets going.

Back to the arithmetic, because the size of the buffer matters more than where it comes from.

What the insolvency figures do and do not say

ASIC publishes what external administrators nominate as the cause when a company fails. In the statistics for 2022-23 — the most recent year ASIC has broken the causes down by percentage — inadequate cash flow or high cash use was nominated in 52% of reports and trading losses in 49%, with administrators able to nominate more than one cause per company. The same statistics describe who these companies are: 83% had assets of $100,000 or less and 82% had fewer than 20 employees. Failure is overwhelmingly a small-business event.

Two honest caveats, because this is the kind of number that gets quoted loosely. ASIC's own guidance says the nominated cause is the administrator's estimate and opinion at a point in time, selected from a predetermined list, and that not every appointment even requires a report. And ASIC does not publish how many of those companies started with too little money — that figure does not exist, so it is not on this page. What the statistics support is narrower and still worth knowing: running out of cash is the most common thing that kills a company, and it kills small ones.

The buffer, and the chain it protects

A buffer is not timidity. You never know what is coming: a cost nobody budgeted for, a quiet quarter, a supplier wanting cash up front, or an opportunity you will want to take and cannot because every dollar is committed. The buffer is what pays wages in a slow month, keeps stock coming in, and keeps the bills paid on time.

Paying on time is the link people miss, so here is the chain in order. A buffer means bills paid on time. Bills paid on time mean suppliers keep the terms they gave you and the credit file stays clean. A clean file is what lets the business borrow later, on better terms than anything available to a business with marks on it. Run the chain backwards and it is just as true: no buffer, late payments, tightened terms, a default, and a business that cannot raise money in the year it most needs to.

The rules are specific enough to plan around. On consumer credit, a default can be listed once a payment is at least 60 days overdue and $150 or more, after a notice, a second notice at least 30 days later, and a further wait of at least 14 days — and repayment history stays on the report for two years. Commercial credit reporting sits outside those rules, with no equivalent notice requirement, which is the more uncomfortable half: a trade creditor's view of you is formed without any of that process.

Where the money comes from when there is no history

Be realistic about the shortlist. Your own savings and money from people who know you. A personal loan, which is assessed on your income rather than the business. A refinance or an increase on the home loan, which is usually the cheaper road and is worth taking where there is time for it — a bank refinance is a process of weeks, sometimes longer, and the answer at the end is not certain. Or a loan secured against real property you already own, which is what HomeSec does: a second mortgage that sits behind your existing first mortgage and then sits there quietly. See start-up business loans for what that involves, and what LVR means for how much equity a property will actually release.

Keep it as long or as little as you like, interest only each month once the capitalised period ends. Some clients have held one for more than two years on interest only and that worked for them. Principal comes down when the business can afford it rather than when a schedule says so: ad-hoc part payments from $10,000, one a month. And refinancing the house later to pay HomeSec out is a perfectly normal ending — the two are not in competition, because one buys the time the other needs.

Six months of quiet, which matters most at the start

Interest capitalised for up to six months means up to six months with no payment to make. For a new business that is the single most useful thing on offer, and it is worth being clear about why. The last thing a business with small, unpredictable, fragile cash flow needs is a repayment leaving the account from day one, in the exact months when every dollar is doing something. Six months is enough time to get a refinance completed, or to get trading up to where interest-only is comfortable rather than frightening.

Back yourself

The objection we hear most often is "I don't want to put my house up." It is an honest reaction and it deserves a straight answer rather than a reassuring one. What a lender hears in it is that you are not sure about your own business — and that is the reason it is hard to get anybody else to fund it. If you will not put your own security behind the plan, you are asking everyone else to carry the risk while carrying none yourself, and no lender takes that trade.

None of which means the fear is foolish. It means the question to answer is the real one: not "do I want to risk the house", but "do I believe this business will make enough to service and repay what I borrow". If the answer is yes, back yourself. If the answer is no, or if you cannot answer it, that is information, and more capital is not what to do with it.

When more money is not the answer

Borrowing is the wrong move more often than a lender's website admits. If the business plan does not show the business servicing the loan and repaying or refinancing it, capital does not fix that — it postpones it, with your property as the security for the postponement. If the numbers only work on a best case, they do not work. If you have not tested the offer with real customers who paid real money, the cheapest capital available to you is the customer you have not found yet.

Where there is time to refinance the home through a bank, take it. Where the gap is small enough to close by starting later with more saved, start later. Where the business is already trading at a loss every month, borrowing against the family's equity to keep it running is how people lose the house as well as the business, and we will tell you so rather than write the loan. Sit down with an accountant and have them check the assumptions in your forecast with you — not the arithmetic, the assumptions, which is where the money is won or lost.

The one tip worth carrying into the application

For a start-up loan you must have real estate security — that part is not negotiable, because there is nothing else for a lender to look at. But there is one exception worth knowing. If you already own other businesses, and one of those is established, you may be able to borrow in that business's name instead. If so, apply in the established business's name rather than in the new one. It is the same money, and it is a different application.

This page explains how to size the money a new business needs and what the options are. It is general information, not legal, tax or insolvency advice, and nothing on it is an offer or an indication that any application will be approved. What is right in your circumstances is a question for your accountant or a lawyer; the ATO publishes the registration and reporting obligations, ASIC publishes what is required of a company and its directors, and a registered liquidator is who to speak to if a business is already in difficulty.

Reviewed by Paul Stone, Joint Chief Executive