Financing Options for a New Business

Starting a business is one of the best things you will ever do: for you, for your community, and for the country. However, the real jobs and value – for both the owner and the economy – are created at this rapid growth stage, which almost always requires significant external funding.

Unfortunately, despite the widely acknowledged desirability of these growing young businesses, securing those crucial funds is rarely easy. You will have to fight to persuade someone that your business is worth backing – but some funding options can be easier and cheaper than others.

For many years, the obvious solution for a business wanting to expand was to go to the bank and ask for a business loan: this could be an unsecured loan, or it could be secured against an asset of the business or owner in order to get a lower rate of interest and to help persuade the bank to lend.

Since bank lending suffered a setback during the financial crisis ten years ago, a series of non-bank or ’alternative lenders’ have sprung up to fill the gap in debt financing for businesses. However, for young businesses with little or no credit history, it can be very hard to secure a loan. If they do, these are often expensive, and the monthly repayments immediately become a cash flow problem for the fledgling firm.

With this in mind, it is a good idea for entrepreneurs to consider different possible options for driving their start-up into the growth phase.

Angel Funding or Venture Capital

Young businesses with big ambitions can attract backing from wealthy individuals or even dedicated venture capital funds, who will invest substantial sums in exchange for an ownership stake. This is known as equity funding and the advantages are that you can raise a lot of money, and you never have to pay it back!

‘Business Angels’ in particular can be an attractive equity partner, because they bring expertise and connections which they use to help the businesses they invest in. This can be a real help when it comes to finding bigger buyers, dealing with the supply chain logistics of a first major scale-up, or getting a product stocked by big chains.

Venture Capital Funds tend to invest on a larger scale than Angels, but the principle is the same. Not every growing business will be attractive to venture capitalists or even small-scale investors; and if they are, entrepreneurs have to bargain hard in order not to give away too much of their business.

Crowd-Sourced Funding for Start-ups

The wonders of the Internet have brought a new form of business funding into the mix: crowdfunding. Australia moved quickly to regulate this area, which is why here, crowdfunding is now referred to as ‘crowd-sourced funding’ when it relates to businesses.

Even very early stage start-ups can sometimes raise substantial sums on crowd-sourced funding platforms. You will, however, need a really good pitch to potential backers and you will have to throw yourself into campaigning enthusiastically – while still finding the time to run your business!

The incentives on offer to supporters don’t just have to involve equity: some of the most successful crowd-funded start-ups have tapped into the customer base by offering rights to the first products made, or a series of discounts on a service, along with a largely symbolic ownership stake.

Unlock Potential with Cash Flow Finance

For businesses which are already established and trading with other businesses, there is a much simpler way of raising money, with little cost or risk and no loss of equity. Cash flow finance can be used to fund expansion, buy equipment or increase working capital as the start-up builds scale, simply by unlocking the money tied up in its accounts receivable.

Sometimes called invoice finance or debtor funding, this system works by allowing a business to get its invoices paid immediately by a finance provider such as OptiPay, instead of waiting 30, 60 or even 90 days for the customer to settle.

For B2B sellers, cash flow finance certainly deserves to be considered among the options for funding expansion: it can unlock a surprising amount of money, and that total will grow as your sales do. A flexible, nimble provider like OptiPay is therefore ideal for start-ups entering the growth stage.

“Get tomorrow’s cash flow today.”