Choose your funding

You may need money to start a new business or buy an existing business or franchise.

Some funding options include:

• a loan
• private investors such as angel investors
• hire purchase (you rent an item with the option of owning it once you have paid off the debt)
• chattel mortgage (you borrow money from a lender to own an item)
• fully drawn advance (a long-term loan with the option to fix the interest rate for a period)
• leasing.

Before you look for funding to survive tough times, try to improve your financial position. Consider:

• help for your finances
• steps to manage being in debt
• ways to improve your cash flow
• government grants.

Find a free and confidential financial counsellor near you on the Moneysmart website.

You can also talk to investors or a lender about finance options to improve your position.

You might need finance to:

• improve your goods or services
• diversify, expand or franchise your business.

Some funding options include:

• a loan
• a line of credit ­(you borrow money up to a certain limit)
• private investors such as angel investors
• trade credit from suppliers.

One way to grow your business is to export overseas.

Some funding options include:

• a loan
• venture capital
• bonds, finance and guarantees from Export Finance Australia
• government grants.

You might need funding to buy inventory (stock to sell). Make sure you consider if you need to pay upfront or when you receive the goods.

If you’re selling goods to businesses, you could ask larger clients to pay a deposit first to help you financially.

Some funding options include a:

• line of credit ­(you borrow money up to a certain limit)
• commercial bill or bill of exchange (a commercial loan on an interest-only or interest-reducing basis).

You may need money for a property, such as a shopfront, factory or somewhere to store your inventory. First consider whether it would suit your business better to buy or lease business premises.

Some funding options include:

• a loan
• a fully drawn advance (a long-term loan with the option to fix the interest rate for a period)
• venture capital.

You might be able to get help from the government as well as other investors.

Some funding options include:

• government grants
• venture capital
• private investors such as angel investors
• the Research and Development Tax Incentive
• crowdfunding.

If you need funding to buy or replace vehicles, equipment or tools, consider whether buying or leasing is better for you.

Some funding options include:

• a loan
• hire purchase (you rent an item with the option of owning it once you have paid off the debt)
• chattel mortgage (you borrow money from a lender to own an item)
• fully drawn advance (a long-term loan with the option to fix the interest rate for a period)
• trade credit from suppliers.

The free Moneysmart cars app helps you work out the real costs of buying and running a car.

Sources

Financial institutions

Banks, building societies and credit unions offer a range of finance products, both short-term and long-term. These include:

• business loans
• lines of credit
• overdraft services
• invoice financing
• equipment leases
• asset financing.

Retailers

If you need finance to buy goods like furniture, technology or equipment, many stores offer store credit through a finance company. Generally, this is a higher interest option. It suits businesses that can pay the loan off quickly within the interest-free period.

Suppliers

Most suppliers offer trade credit. This allows your business to delay payment for goods. Trade credit terms vary. You may only get it if your business has a good reputation with the supplier.

Finance companies

Most finance companies offer finance products through retailers. Finance companies must be registered with the Australian Securities and Investment Commission (ASIC). Check if they’re on ASIC’s professional registers.

See a list of companies you should not deal with on ASIC’s Moneysmart website.

Factor companies

Factor companies provide finance by buying a business's outstanding invoices at a discount. The factor company then chases up the debtors. This is a quick way to get cash, but can be expensive compared to traditional financing options.

Family or friends

When a friend or relative gives you a loan, it’s called a debt finance arrangement. Before you decide on this option, think carefully about how it could affect your relationship.

Sources

Self-funding

Often called bootstrapping, self-funding is often the first step in seeking finance. It involves funding from your personal finances and business revenue. Investors and lenders will expect some self-funding before they agree to offer you finance.

Family or friends

Offering a partnership or share in your business to family or friends in return for equity is often an easy way to get finance. However, think carefully about how it could affect your relationship.

Private investors

Investors can contribute funds to your business in return for a share in your profits and equity. Investors (such as angel investors) can also work in your business to provide expertise and advice.

Venture capitalists

These are often big corporations that invest large amounts in start-up businesses. The businesses usually need potential for high growth and profits. Typically, venture capitalists:

• require a large controlling share of your business
• provide management or industry expertise.

Stock market

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. There is also a risk of not raising the funds you need due to poor market conditions.

Learn how to buy and sell shares on the Moneysmart website.

Government

In general, the government doesn't provide finance for starting up or buying a business. But you might be able to apply for a grant to:

• do research and development
• expand your business
• innovate
• export your goods and services overseas.

Find grants and programs for your business.

Crowdfunding

Crowdfunding is way to raise money by asking a lot of people to invest in or donate to your product idea or project. You generally do this through a crowdfunding website.

There are 4 main types of crowdfunding you can use to get finance for your business. Each uses a different way to attract funding and may have different tax rules for the people involved.

Learn about crowdfunding.