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Where are you going to get finance?

Assess your options

There are three sources of finance for small business:

Debt or equity finding
Borrowing from financial institutions
Other sources

For new business owners, it is highly advisable to seek legal and accounting advice on financing choices. The decisions you make will have taxation and business ownership implications.

Debt or equity funding

There are two basic types of finance: debt and equity. Debt and equity financing serve different business needs and have very different implications.

Use debt financing when funds are required for a specific asset and you are confident the cashflow to service the loan will be generated. A good practice is to match the term of debt to the expected life of the asset. Term loans are a good way to finance the purchase of fixed assets. Bank overdrafts and other short-term debt arrangements are a good way to source working capital.

Equity financing is the option that injects funds or capital into the business. The owners of a business are the equity holders.

For new business owners, it is highly advisable to seek legal and accounting advice on financing and equity choices. The decisions you make will have significant taxation and business ownership implications.

Borrowing from financial institutions

Banks and other institutions offer a wide range of business financing options. Products, terms and facilities change frequently.

Obtain the most current information before making a choice.

Take time to read the fine print of Product Disclosure Statements. It will be time well spent as you will be taking personal and business risks in borrowing from financial institutions.

Other sources of funding

It is not unusual for a business to use a variety of sources of equity and/or debt funding.

Other sources of funding include:

family, friends, business associates and other contacts may be the least expensive source of debt or equity funding. These may also be flexible and generous. However, such funding presents a special set of risks. Consider how you will deal with the issues if you are unable to meet their expectations.
private venture capital services such as –
                            syndicated funding which involves a network of investors and is typically organised by a lawyer or accountant
                            'business angel' services offered by some major chambers of commerce. They match well-managed, investment-ready companies with private investors who will receive equity or dividends in return for funding
                            venture capital companies offering funding typically starting at $500,000 for start-up capital, growth capital or exit funding. In return they expect significant equity, board representation and an exit path.

For new business owners, it is highly advisable to seek legal and accounting advice on financing and equity choices.

This information was provided to HBC by I&I NSW