6 ways to help finance business growth
Looking to borrow money to start a business? Or need a hand financing business growth? Here’s a short guide to some of the business finance options you could consider.
A number of factors will influence the type of finance you choose, including the purpose of the loan or cash injection, the amount of funding required, and the timescales involved. At one end of the scale you may need a simple short-term loan to purchase a vehicle, machinery or equipment. At the other end you could be looking to release equity in your business in order to fund growth.
Whatever your reason for seeking finance, it’s wise to seek professional advice before committing yourself to any of the following options.
Your business bank will offer various options, so it’s a good idea to take advantage of a one-to-one meeting with a business manager to discuss your specific needs.
Their priority will be to secure a sound understanding of your financials and cash flow projections. Therefore, be prepared to present and discuss this information in your meeting. Products available from most banks include:
A business loan1 could be the option to take if you’re purchasing property or expensive equipment, or even a company. Unsecured loans may be available for shorter periods such as up to five years, while secured loans can be paid off over terms such as 25 or more years.
An unsecured business overdraft1 can help you manage your cash flow and cover business expenses without you having to provide any security (such as a property). Generally, this financing option has no fixed term, and you simply repay what you can when you can, within the limit you’ve agree with your bank.
A credit card1 is a simple way to ‘purchase now and pay later’. Cards range from low rate options to those that reward you for everyday business purchases – and many offer an interest-free period of up to 55 days.
Before you make any decisions about finance, don’t forget that credit criteria and other conditions and fees are applied by credit providers.
Angel investors are businesspeople who look for businesses (or creative initiatives) to invest in. They are usually looking for short-term returns and/or medium-term sale value.
If you pursue this option, you’ll be inviting people to become shareholders in your business and you’ll need to be comfortable with their input and scrutiny. In return, they may bring experience, ideas and direction, in addition to investment.
Angels can be hard to find, so start by talking to the small business association in your state. There will be a lot for you to think about, including the documentation of the formal agreement between yourself and any other third party – and sound professional advice is a must.
Government-funded grants are available in a wide range of industries and many are specifically intended to support growing businesses, such as yours.
Grants are generally a low-risk funding option, as you might not have to pay anything back. However, the application process may be lengthy and complex and there could be restrictions on how you can use the money.
Start your search for a grant on the Business.gov website.
Crowdfunding is a relatively new way of raising funds online, usually in small amounts from a large group of people. In return for their contributions, you may offer investors perks or rewards or, if you choose to, equity in your company.
This method of securing funds is available on various websites, giving you potential access to thousands of investors. However, it may require you to give up some control of your business and you may not be able to raise the full amount you require.
Although not a financing option as such, leasing business equipment such as machinery or cars can give you access to essential tools for growth, without you needing to make expensive outright purchases. This can help support your business growth without having a big impact on your cash flow.
Read about other advantages of leasing in our Funding vehicles, machinery and equipment article.
Whether you’re a sole trader or an established company, having someone buy into your enterprise could be a good way to inject capital into it, for expansion or a major purchase. Naturally, it’s important that you seek professional guidance regarding the best way to establish a partnership – and remember that any change in your company status may have tax and reporting implications.
The Australian Government has a website that provides useful information about changing your company structure.
Having more cash available to your business can have as much positive effect as borrowing money. Re-negotiating the terms you have with your suppliers (when you have to pay them) and the terms you extend to your customers (when they have to pay you) in your favour, could boost your cash flow and release funds.
Simply taking better control of expenditure will have the same positive effect. Rather than buying expensive items, such as machinery or cars, you may want to consider the leasing option discussed above.
Starting or expanding a business can require a significant injection of funds and there are plenty of options available to source them. Before making any decisions, it’s a good idea to obtain personalised advice from a professional financial adviser and/or your accountant.
Raising business finance can involve a lot of energy and persistence, and there are various ways to approach it. But before you do anything, make sure your business plan is in in good shape. This is the first thing that anyone providing you with credit or finance will want to see.
1. Westpac’s products are subject to terms, conditions, fees and charges; and certain criteria may apply. Before making a decision, read the disclosure documents for your selected product or service, including the Product Disclosure Statement and T&Cs for Westpac credit cards, unsecured business overdrafts, business overdrafts and business loans, by clicking the above links; and consider if the product is right for you.
The information in this article (including any finance information provided) is general in nature and does not take your objectives, financial situation or needs into account. Consider its appropriateness to these factors; and we recommend you seek independent professional advice about your specific circumstances before making any decisions.