Sources of debt and equity finance
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.
