Once you know how much finance you need, it’s important to know your options. Knowing who to approach for finance can help you find the best finance option for your business. It can also give you several alternatives if traditional finance options fail. The two main types of finance available are debt finance and equity finance.
See the list below for some common sources of debt and equity finance:
Financial institutions such as banks, building societies and credit unions offer a range of finance products with both short and long-term finance solutions. Some products include business loans, lines of credit, overdraft facilities, invoice financing, equipment leases and asset financing.
Online Lending Platforms
An online lending platform such as Spotcap.com.au offers unsecured lines of credit and business loans from $1,000 up to $250,000 to fund the growth and expansion of a business. The lending criteria differs from traditional credit providers such as banks, building societies and credit unions, focusing on your recent business performance, not your historical financial situation.
If you require finance to purchase goods such as furniture, technology or equipment, many stores offer store credit through a finance company. Generally, this is a higher interest option and is suited to businesses that can pay the loan off quickly within the interest-free period.
Most suppliers offer trade credit that allow businesses to delay payment for goods. The terms often vary and trade credit may only be offered to businesses that have an established relationship with the supplier.
Most finance companies offer finance products via a retailer. Finance companies must be registered, so before you obtain finance check the Professional registers on the Australian Securities and Investments Commission (ASIC) website.
Factor companies offer a form of finance where they purchase a business’ outstanding invoices at a discount. The factor company then chases up the debtors. While factoring is a way to get quick access to cash, it can be quite expensive compared to traditional financing options.
Family or friends
If a friend or relative offers you a loan that is expected to be repaid, it’s called a debt finance arrangement. If you decide on this option, carefully consider how this arrangement could affect your relationship.
Often called ‘bootstrapping’, self funding is often the first step in seeking finance and involves funding purely through personal finances and revenue from the business. Investors and lenders will both expect some amount of self funding before they agree to offer you finance. If you’re thinking of investing in your own business and want to improve your personal finances, visit the MoneySmart website.
Family or friends
Offering a partnership or share in your business to family or friends in return for equity is often an easy way of obtaining finance. However, this option must be carefully considered to ensure your relationship is not adversely affected.
Investors can contribute funds to your business in return for a share in your profits and equity. Investors such as business angels can also work in the business providing expertise or advice as well as providing funds.
Venture capitalists are generally large corporations that invest large sums in start-up businesses with the potential for high growth and large profits. They typically require a large controlling share of the business and often provide management or industry expertise.
Also known as an Initial Public Offering (IPO), floating on the stock market involves publicly offering shares to raise capital. This can be a more expensive and complex option and carries the risk of not raising the funds needed due to poor market conditions. See the Australian Stock Exchange website for details about listing.
In general, the government doesn’t provide finance for starting up or buying a business. However, you may be eligible for a grant in certain circumstances, such as business expansion, research and development, innovation or exporting. Search the business.gov.au Grant Finder for details about government grants, incentives and other funding programs.
Some social media websites offer entrepreneurs a ‘crowd funding’ platform for their product prototypes or innovative projects. It involves setting a funding goal, providing project and budget details and inviting people to contribute to a startup capital pool. See the MoneySmart website for more information on Crowd funding.
- For details about specific finance products, see the Business Finance Products page at business.gov.au
- Search the Directory of Government and Business Associations for details of associations representing investors.
- Check the Professional registers for registered companies on the ASIC website.
- See the MoneySmart website for a list of Companies you should not deal with.
- If you’ve been treated unfairly by a finance provider, contact the Financial Ombudsman Service.
- Seek finance in your state or territory.
- Seek advice from a business advisor or accountant.