Financing for small businesses is a global challenge that could be the determining factor between success and failure. Many owners of small businesses have great ideas that have high chances of growing into big brands if only they get the right finding.
Over the years, there has been a rise in creative approaches to financing small businesses. From venture capitalists to government and organizational grants, there are several ways of sourcing funding for small businesses. This notwithstanding, small business owners need to know and connect with the right funders to help them grow and expand their vision. In Australia, there are a variety of financing options available as we highlight in the discussion that follows.
Unsecured Business Loan
An unsecured business loan tops the list of the best options when it comes to financing a small business. Like any other type of loan, it comes with stipulated terms and conditions including the agreed repayment period. However, it’s a main advantage is that it requires no security and the loan terms are relatively negotiable and agreeable between the involved parties.
This is a good way of seeking short-term financing for periods of up to about 2 months. Repayments can be agreed upon on a weekly, monthly or daily basis.
Invoice /Factoring Financing
Also known as invoice discounting, this method of financing relates to outstanding debts owned by other entities to a business. The agreement is such the business sells off the outstanding invoices to a lender who will eventually collect them at a later date. This arrangement allows quick and immediate access to funds instead of waiting for due invoices to mature. Factoring companies charge rates of between 80%-85% on the invoices. The most enticing aspect of this kind of financing is the immediate availability of funds to the cash-starved businesses while the factoring company such as abrfinance.com.au chases your debtors.
Merchant Cash Advance
A merchant cash advance is an interesting kind of loan in that the business is basically borrowing against its future sales. The lender avails a lump sum amount upfront and you make arrangements
The borrower is free to use the merchant cash advance for anything they want. It could be working capital, upgrading the inventory, or revamping stock. This freedom gives the small business owner a wider scope of how they can use the money available.
Hire Purchase
Hire purchase is a good model of asset financing, especially for those looking at medium-term financial solutions. It is similar to equipment financing in several ways. The lender retains direct ownership of the particular asset until all the due payments are settled in full. In some cases, the borrower is can purchase the equipment at a reduced price or give it back to the lender for a chance to upgrade to a new machine.
Personal Loans
There are several ways of acquiring personal loans from accredited institutions or individuals. An important factor that dictates the success of personal loans is the relationship between the lender and the borrower. For a financial institution, factors such as savings and the period of working together may determine whether personal loans are granted or not. An arrangement is made between the involved parties to have repayments done in well-planned and affordable installments. Most institutions offering personal loans ask for collateral, guarantors, and other relevant personal information to help them keep in touch.
Venture Capital
Venture capitalism is an ideology that has been around for quite some time. This mode of financing has been instrumental in the growth and success of several great ventures around the globe. Venture capitalists basically fund ideas or businesses that have a high potential of future growth. These individuals are professional investors who analyze several elements of the business before putting in their money. If a small business is successfully funded in this model, they benefit from engagement with successful entrepreneurs along the way.
Conclusion
Managers and owners of small businesses in Australia have several funding options they can try out. This notwithstanding, it is advisable to put into consideration all elements and factors relating to the loan. Aspects such as the period of repayment, terms of the loan, security among others. Evaluate all your financial options as well as future business projections to determine your ability of repaying the loan.