Business Loans

Business Finance

Businesses finance can be unnecessarily complicated. I like to look at the basics. If you don’t want to bootstrap your business then you are going to need business funding. Funds will need to come from someone. If you accept money from someone to help you fund your business then you have financed at least a portion of your business.

That’s about as basic as it gets.

“Here’s some money for your business” “Here’s something in return”

The complicated part is the something in return. Business funding is the easy part. But what do they get in return? Those who transfer their money to you in exchange for something related to your business are called investors. Investors can be banks, individuals, or other businesses.

As an Australian business owner, what are your business finance options? If you need money to help grow, expand, or innovate then debt or equity financing is your solution.

Equity Finance

Equity is the ownership in a company. In accounting terms its the assets of a company and the liabilities of a company. So if your company has 100,000 dollars of assets but has 50,000 dollars of debt then there is 50,000 worth of equity.

How do you finance equity?

If you believe that your business is risky but has lots of upside potential then equity financing might be an option for you. But this isn’t always an option. If you finance your equity then then someone is giving you money in exchange for a portion of ownership in your company. If you’ve ever watched Shark Tank then you know what I’m talking about. The business owners are generally presenting a somewhat risky investment to the ‘sharks.’ They offer a portion of ownership in their company in exchange for money and mentoring/other resources.

Is it easy to find Equity Investors?

For most businesses I’d wouldn’t recommend equity financing. Its difficult to find investors. If you know how to present your company to the right people it can be rewarding but then you’ll also have to answer to them when things aren’t going well in the business. This can get very stressful.

There are good things about equity finance. If your business starts to dwindle then you don’t owe the investors anything. But if the business does well you may find yourself paying a large portion of the profits to your investors.

Debt Financing

Debt financing is more traditional financing especially for small business finance. This is where you borrow money at a set interest rate and put up all or part of the business as collateral.  This type of financing is a bit more common and has a bit more flexibility. The down side is of-coarse you will need to pay a fixed amount each month, quarter, or year. This will need to be paid regardless of the state of the business. It can be a small portion of your profits or it can be all of your profits.

You may think this type of funding involves lots of paperwork, great personal and business credit worthiness, and a well established business. But that’s not true. There are low doc loans, unsecured loans, bad credit loans, and regular small business loans. Pretty much you can finance any type of business or any asset in a business (like equipment or vehicles.)

Debt and Equity

To summarize the difference between debt financing and equity financing. (debt vs equity financing) Here’s a few points to remember:

  1.  Once you set up a debt loan you generally won’t be bothered by the bank unless you can’t make your payments
  2.  Banks and debt lenders (generally) will not spend time to mentor you or help you grow your business
  3.  It’s very difficult to find equity lenders that are willing to take a risk on you
  4. If you do manage to get a equity lenders they usually don’t want to give you very much money, which means you’ll have lots of equity investors and you’ll need to be in contact with them regularly
  5. You don’t have to do one or the other, you can do both
  6.  Small business financing is mostly debt financing

Other Options of Funding

There are other ways to get money for your business:

  1.  Save money yourself. Pros – You don’t have to answer to anyone and you get to keep all the profits. Cons – You probably will never start the business because its difficult to save enough money
  2. Get money from your friends and family. Pros – they will probably give you a good rate or you can get the money for free. Cons – If you have rich friends and family you probably aren’t reading this article.
  3. Crowd funding. Pros – You can test a business idea before you spend too much money or time on it. Cons – sometimes its a whole business within itself just to get these campaigns started.
  4. Government Grants. Pros – Free money. Cons – Not easy to get.
  5. Peer to Peer lending. Pros – easy to get approval and setup. Cons – usually can’t get enough money.

If you do some research you can find there are some new and creative ways to get funding. But most of us would rather spend time building our business then learning how to get money for it.

Business Finance – Get Started

So to get started with business finance you’ll need to get approved for a loan. Go to the ebroker homepage and fill out the information to filter through all the noise.

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