Ever wondered how you can get funding to help grow your business? Here are seven different options you may not have thought of and the pros and cons of each.
1. Government Grants
If you are eligible, government grants can be a great way to generate cash for your business with minimal risk. However, typically the application can be lengthy and complicated.
If you are interested in pursuing government grants, websites such as Australiangovernmentgrants.org and business.qld.gov.au can help make it easier. MGI can also help you to assess your eligibility for various grants and tax offsets.
Government funded innovation centres that you should also look into include ilab, QUT Creative Enterprise Australia, and Innovation Centre Sunshine Coast. The City of Gold Coast also provides support to start-ups and growing businesses and R&D tax offsets is another way to access funding for innovation.
2. Small business loan
There is a common perception that securing a small business loan can be difficult. To be fair this is often true, particularly in your early days or if you don’t have a line of credit against your house. However, there are ways to increase your appeal to the banks. Most importantly you need a solid business plan, profitability projections and some of your own money on the table.
Using your accountant to approach the bank can be beneficial. If you can convince the bank that (together with your accountant) you have your finger on the pulse of your business then you’re a long way there.
3. Debtor financing or funding
Traditionally thought of as a lender of last resort, debtor finance companies should not be overlooked as a source of funding for growing businesses.
Provided the business is profitable, debtor finance allows you to borrow against the debtor book. There are a few drawbacks associated with using debtor funding, however when managed correctly these can be overcome and I have certainly seen debtor funding used to beneficial effect by business owners who had little or no ‘bricks and mortar’ security.
Some debtor funding companies will require the arrangement to be disclosed to the customer and outstanding debts are handled by the debtor finance company.
This needs to be handled with care and communicated as a good news story (i.e. ‘the business is growing and needs cash to fund that growth’ and ‘the business has outsourced its debtor management function thereby enabling the owner to focus on business growth’).
Debtor finance is also generally more expensive because of the inherent risk but if it’s your only source of funding and if you’re making a return on capital from your business that is greater than the cost of the debtor finance, then it is worth doing.
Using your debtor book to fund your growth makes sense. As your business grows, you can borrow more to fund that growth. However, this form of funding is not perfect, so speak to your accountant or business adviser before heading down this path.
4. Negotiating an advance from a strategic partner or customer
If you can find a major customer, or a complimentary business, who sees immense value in your idea you may be able to negotiate for them to fund the growth of your business.
5. Angel investors
Angel investors offer another opportunity to fund your business. There are a number of angel investor groups in most cities and a number of angel investors who operate outside of a business angel network.
6. Venture Capital
If you are a well-established company looking to raise a serious amount of capital, venture capital firms may be an appealing option. Because of the size of funding provided by venture capital firms, and the high-risk nature of the loan, venture capital funding comes with a number of cons. Generally VC partners will want to be involved at the board level. Sometimes they may also require more than a 50% stake in your company, which means you could lose management control. Ultimately the decision to pursue venture capital should depend on whether it will open up much greater opportunities. In other words, are you better off with 50% of something or 100% of nothing?
7. Out of the box ideas
Sometimes it pays to think outside the box. Airbnb’s founders got some early funding by selling Obama O’s and Captain McCain cereal during the McCain-Obama election campaign. It’s not orthodox but it did get them a foot in the door.
Often funding a growing business can involve using a combination of the above strategies. If you are interested in discussing funding options contact us.