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4 Ways to finance your business during a crisis

Don’t let an economic downturn stop you from finding the finance your business needs to flourish. 

It’s been a challenging year for business owners in Australia, as many face the ever-shifting conditions of a global pandemic. Budgets can get tight as costs roll on and revenues dip.

Despite how difficult things may appear, now’s not the time to give up. If you’re a small business owner in Australia, then there are a range of options available to help you sustain your business through into a brighter future.

If you’re in the middle of a financial crisis and seeking to inject some cash into your business, consider the four following options.

1. Banks and commercial lenders

By far the most common source of additional funds for established small businesses, banks and commercial lenders provide a raft of benefits, whatever your crisis is.

Firstly, it allows you to access the money that you need, without handing out a portion of ownership of your business. Other means of financing may require you to relinquish some of that ownership. Lenders will offer various finance products for the debt that you require, to be paid back with interest over time.

Different lenders cater themselves to different kinds of businesses. Going with a well-established bank may offer a sense of institutional security and may be more transparent in terms of the interest and repayment requirements. Smaller lenders often run on low-cost operational models, so they may also offer very competitive viable products.

Keep in mind, some lenders are still offering repayment deferrals to assist with the tougher conditions many business owners are coping with.

2. Invoice financing companies

Stagnant cash flow from unpaid invoices can make an already difficult year that much harder. If one of your financial crises is struggling to get invoices paid, some companies may be able to assist in the short term with any outstanding customer invoices, through invoice financing options.

This can be a worthwhile option for business owners looking to avoid more debt, as invoice financing is not your typical form of borrowing money. While invoice finance is a form of business finance, instead of taking out a loan in the “standard” way, invoice financing companies pay you around 80% of the money you’re owed for your chosen outstanding invoices, (or your entire accounts receivable ledger) upfront. 

Once your customers pay the invoice, the loan is instantly repaid, and the remaining 20% is paid to you, minus any interest and/or fees for the service.

3. Angel investment

Angel investment refers to an individual investing their funds into your business, usually for a percentage of ownership. Due to the current economic impacts of COVID-19 on businesses, angels can be useful as they don’t require the same kind of regular repayment as loans, nor are there any interest obligations. They are tied to the success of your business, and as such don’t apply the same type of immediate financial pressure.

There are some pros and cons to this approach. Firstly, you may relinquish some ownership of your business. However, keep in mind that many investors are in the position they’re in through a strong sense of business savvy and success. Giving them a stake of ownership may make you privy to some of the best tools and business operation techniques available.

This can be especially important in times of crisis or stress, when cooler heads are required, especially as they have invested their own funds, they may potentially be more emotionally invested in you and your success. This can also allow for greater collaboration, communication and enthusiasm than you might experience with venture capital options.

That said, more investors in your business dilutes your share of profits and means there are more people to consider in the big decision-making processes. Many business owners will opt for bank or commercial lending options to prevent additional owners coming in.

4. Venture capital

Venture capitalists are like angel investors, except they are charged with the investment of other people’s money. This can make them more scientific or rigid in their analysis of your company or the market outlook, although this can also potentially be to your advantage.

Unlike angel investors, venture capital firms will weigh up the pros and cons in more businesslike fashion, potentially preventing you from making costly mistakes and decisions with your finances. Considering the current climate, having people invested in your business with a keen eye for efficiency can be a real advantage.

One of the main drawbacks with venture capital firms appears to be that they can have a reputation for being shark-like in their investment approach. They can be aggressive in the percentage of ownership demanded, based upon the investment given, and may impose additional requirements on you or your colleagues based upon the agreement you make. It is important to have a fair valuation of your company before entering into agreements with such investors.

With the right financial support, there is no reason why your business can’t grow and blossom during a crisis. With the right debt or investment arrangements, businesses can ensure they have the cash to be able to meet their costs and continue to succeed.

For more information on how invoice financing works, or to apply for a debtor financing facility, please contact our friendly team at 1300 760 205, email us at hello@earlypay.com.au, or register your interest here.