Raising Finance

You’ve researched, researched and researched some more. Your new business concept is viable and with the right systems in place, could be an outright success. There’s just one thing missing. Finance.

First up, you’ll possibly need some initial financial backing. Then there are the ongoing credit facilities which are often integral to sustaining and growing a business.

Equity financing
Many people choose to use their own funds when starting up. It means no obligation to repay a loan, nor does it mean having to offer anyone else equity in your business.

Equity financing is an exchange of money for a share of the business – which can come from you, or other investors. This form of financing allows you to obtain funds without having to repay a specific amount of money at any particular time.
Seed capitalists and "business angels" – private investors who are looking for a new opportunity in which to invest – are an increasingly popular method of obtaining finance. The main disadvantage is that by inviting others to take a share, you will own less of your business and may lose some management control.

Debt financing
Raising debt – or borrowing money that will be repaid with interest over a period of time – is attractive to many business owners because unlike equity finance, the lender doesn’t gain an ownership in your business. In addition, while you receive the benefits now, you are not committing large sums of your own money up front. Your only obligations are to repay the loan and the interest it incurs. The financing cost is a business expense, and the interest on the loan is usually tax deductible.

The main forms of debt financing are:

• working capital line of credit – sources include bank overdrafts, bill facilities and credit cards
• term loans
• financing vehicles and equipment – includes leasing and hire purchase
• trade finance – financing the buying and selling of goods domestically and overseas

Finding the right balance
It’s important to maintain a balance between debt and equity financing (whether financed by yourself, or outside investors). For start up businesses in particular, the owner needs to guard against cash flow shortages which can result in taking on excessive debt, impairing your credit rating and ability to raise money in the future. You must be comfortable with your decisions to taking on loans (debt) or taking in new investors (equity). It’s a fine line, but it’s so important to get it right.

Important information about advice
As this advice has been prepared without considering your objectives, financial situation or needs, you should, before acting on the advice, consider its appropriateness to your circumstances. View our Financial Services Guide (PDF 59kb).

Other important information
Applications for finance are subject to the Bank’s normal credit approval. Full terms and conditions are included in the Loan offer. Bank fees and Government charges may apply.