In this article, we share with you some very clever ideas and tips on how you can fund an Australian small business. It doesn’t just need to be a bank loan.
A bank loan is the most common way to fund a small business. But there are many other ways too. Here are some of them:
Equity crowdfunding, or equity crowdfunding, is the most common method. The idea behind it is that everyone can invest in companies and small businesses via an automated platform that connects investors with entrepreneurs. It does require some experience setting up and running a business for investors to be able to invest, but it’s not overly complex.
Assuming you have a good idea for a product or service, you can use equity crowdfunding to raise money from investors (a group of people who buy equity in your company) and fund an Australian small business by receiving cash or other forms of repayment at a predetermined time after the sale has been completed (called the success date).
You must first register your company and create an initial offering through the platform before you can sell any shares – this can take up to two weeks depending on your market/country/etc.
Another option is traditional venture capital funding, where seed or Series A rounds are raised by venture capitalists and investors, who typically see steady funding for several years after completing the round of funding (unless there’s an IPO). An investor will usually pay more than what was raised by the VC fund itself as returns from their investment are usually higher than those from VC funds.
If you want to raise large amounts of money to fund an Australian small business from venture capitalists and investors, then consider raising Series B rounds instead; if all you want is cash then Series A rounds might be more suitable for you.
What are some alternatives to bank loans?
Most small businesses don’t need bank loans to grow. Check out our business funding alternatives that could boost your bottom line.
Don’t assume you’re going to need a bank loan to fund an Australian small business. In fact, it may not be worth the trouble for a small business. If you have a strong idea for your product and have it in front of investors, then most likely they will be interested in investing in your company, but if you don’t have an idea and no one thinks it’s good, then all you need is the millions of dollars you can borrow from a bank on their terms.
We’ve done it before with companies we love. So, if you think that this article is a great place to start, read through it and see what others think on the topic. This might also be useful as an idea for brainstorming or as a starting point for pointing out some of the alternatives available to small business owners who may want to raise funds.
Why consider alternatives to bank loans?
It can be hard to obtain a bank loan to fund an Australian small business. If you are not yet sure whether you should go ahead and get a business loan, here are some reasons why:
- You don’t know what you want to do in the future?
- Do you need a bigger cash flow?
- You don’t have an immediate need for the funds?
- You don’t have the money readily available to pay for all your bills anymore?
If you think that’s a good reason, then consider this other option instead:
Bank loans are expensive and there is no guarantee of their success in the long run, so it could be better to start using alternative methods as soon as possible for your small business financing needs.
How can you get started with finding alternative funding?
Often, the most common questions on our blog are “What are some alternative funding options I can use to fund an Australian small business?” and similar. The answer is simple: You don’t need to go looking for them. You have a lot of options right here, right now:
- Mortgage (not for you)
- Borrowing from your family or friends – if you can prove that you can pay it back (and there are ways of doing this and the rules are more complex than they might seem)
- Credit cards – but only if you can prove that you can pay them back (and there are ways of doing this, and the rules of how to pay them back are more complex than they might seem)
- Bank loans – but only if all your other options aren’t available
As mentioned above, these aren’t alternatives. They’re just different approaches to getting your business started. You should always find an option that works in your situation, even if it isn’t the one we recommend here.
That’s why we’ve put together this list. It’s not a route to get rich quick, but it’ll keep you on track while getting the business started. We hope it gives you some ideas that will keep you going as you start earning money on your own. And please let us know what else we should add!
What are some specific alternative funding options?
There are a lot of interesting ways to fund a business. The one you choose depends on the business and the financial situation of your company. That said, there are some general principles that apply to all options:
- The funding is usually non-recourse (meaning, the company itself only has control over the capital raised)
- The funding comes in long-term numbers (i.e., 1, 2 or 3 years)
- The terms tend to be very favourable to the client (e.g., lower interest rates, no prepayment penalty, no early repayment charges)
- There is almost always an option to pay back sooner than the term of the loan (e.g., with interest-free money or even cash)
- There is almost always an option to add other things like equipment and/or additional software features on top of the loan amount
Most small businesses don’t have any sort of bank account at all; in that case, there may not be a need for a bank loan anyway. A variety of other forms of financing can also be used:
Lending against your company assets: Put up collateral in order to get fast money from lenders if you need it; This can be ideal for companies that have found a way around their lack of access to loans but still want access to capital.
These are usually small businesses with less than $1 million in assets; this isn’t always possible but it can often be done if you have enough equity in your company’s ownership structure or if you have some significant outside capital available (e.g., investors). These are also good for companies where you plan on building up as much equity in your company as possible before taking out any loans because they give you more flexibility when it comes time to move cash into your business.
In addition they allow you to continue doing what you love while paying ongoing bills and letting your owner take care of operations until they come along and take over again…and this is crucial!
They won’t work well for companies with more than $1 million in assets since they require either significant outside funding or significant equity buildup in order for them to work well (at least depending on how much leverage was used); because most small businesses don’t have that kind of equity, these types of loans aren’t being made very often by most banks anyway (although some do offer them — just make sure that’s what you want). If you’re really lucky
There are many ways to fund an Australian small business, so don’t feel limited to just bank loans. Consider all your options and find the best fit for your business.
How can you start a small business? It’s a question I’ve been asked many times. For me, it has four simple answers:
- Find a passion (but not an obsession) and make it your career.
- Get an idea and get started building something in the real world.
- Do something you are passionate about and make money while doing it.
- Don’t do anything until you fail at least once.
I’ve written before about ways to create a business plan, as well as other steps to take before you start your business, so I won’t go into that here. There are many more blog posts on this topic if you would like to read more.
Do it or not. And remember that there is no right or wrong answer here, just an answer based on personal experience in starting my own company and some of my observations of others who have done it well or poorly. I hope this helps get you started on your own journey towards starting your own business!