How To Raise Money For Your Business: Funding Options And Legal Steps

Raising capital can be one of the biggest growth levers for a startup or SME - and also one of the most stressful parts of running a business.

If you’re searching for how to raise money for your business, you’re probably balancing a few competing priorities: you want enough funding to move quickly, but you don’t want to give away too much control, take on unmanageable debt, or sign something that creates legal and commercial headaches later.

The good news is that Australian businesses have a wide range of funding options - from bootstrapping and revenue-based growth to debt, equity investment, and more creative deal structures. The key is understanding what each option really means in practice (and what documents you’ll need to protect yourself).

Below, we’ll step through common ways to raise money, what they suit best, and the legal steps you should take before you accept funds.

What Does “Raising Money” Actually Mean For A Business?

When people talk about raising money, they usually mean getting cash into the business to fund growth - but that can happen in a few very different ways.

Debt vs Equity (And Why It Matters)

• Debt funding means you borrow money and repay it (usually with interest). You keep ownership, but you take on repayment obligations.
• Equity funding means someone invests in exchange for ownership (shares). There’s typically no repayment schedule, but you share control and future upside.

There’s no “best” method universally. The right answer depends on your business model, cash flow, risk appetite, and how quickly you need to scale.

It’s Not Just About Cash - It’s Also About Risk

Funding arrangements can affect:

• who controls decisions in your business (now and later)
• who owns your intellectual property and goodwill
• how profits are distributed
• what happens if the business hits a rough patch
• whether you can raise further money later (and on what terms)

This is why legal setup matters. A funding deal that looks “cheap” upfront can become expensive if it boxes you in.

Common Funding Options For Australian Startups And SMEs

If you’re working out how to raise money for your business, it helps to map options from least complex (and least legally intensive) to more structured deals.

1. Bootstrapping (Using Your Own Savings Or Reinvesting Profits)

Bootstrapping is when you fund the business yourself - through personal savings, reinvesting revenue, or running lean until cash flow improves.

When it can work well:

• you have early revenue or a clear path to it
• you want to avoid dilution (giving away equity)
• you’re testing product-market fit

Key legal considerations:

• If you’re putting personal money into a company, it’s worth documenting whether it’s a loan or a capital contribution (this matters for tax and repayment priorities).
• If you have co-founders, you’ll want clear rules on who owns what and what happens if someone leaves - this is often handled through a Founders Agreement.

2. Friends And Family Funding

Friends and family funding can be a fast way to get early capital, but it’s also one of the easiest ways to create relationship stress if expectations aren’t clear.

These arrangements are commonly structured as:

• a loan (with repayment terms)
• equity investment (they receive shares)
• a convertible or “hybrid” arrangement (money now, ownership later)

Practical tip: if you’re taking money from people close to you, it’s even more important to write it down. Clear documentation protects everyone.

3. Bank Loans And Business Finance

Traditional business loans can suit established SMEs with reliable cash flow and assets (or a director willing to provide security).

Common features you’ll see:

• repayment schedule (weekly/monthly)
• interest and fees
• security (e.g. a charge over business assets)
• personal guarantees from directors

Key legal considerations:

• Read security documents carefully. Many lenders will require a security interest over business assets, often documented in a General Security Agreement.
• If security is being registered, you’ll want to understand the PPSR system and how registrations work in practice.

4. Government Grants And Programs

Grants can be attractive because they often don’t require giving up equity or repaying the funds - but they can be competitive and highly conditional.

Common grant obligations include:

• using funds only for approved expenses
• meeting milestones and reporting requirements
• record keeping and audit rights
• repayment or clawback if conditions aren’t met

Before you rely on grant money, make sure you’ve read the terms and understood what happens if timing shifts or milestones change.

5. Angel Investors (Early-Stage Equity Funding)

Angels typically invest earlier than venture capital. They may invest smaller amounts, and often bring industry knowledge, networks, and strategic support.

When angel investment can make sense:

• you need capital to build product, hire key roles, or accelerate growth
• you’re comfortable sharing ownership
• you value mentorship and introductions

Key legal considerations:

• Be clear on valuation, what percentage they receive, and whether they get special rights (e.g. veto rights on major decisions).
• If you have (or will have) multiple shareholders, a Shareholders Agreement can help set rules around decision-making, exits, and what happens if someone wants to sell.
• Keep in mind that offering shares in Australia can trigger disclosure and other requirements under the Corporations Act 2001 (Cth), depending on factors like who you’re offering to and how the offer is structured.

6. Venture Capital (Growth-Stage Equity Funding)

VC funding is typically for higher-growth businesses that are ready to scale. It can involve larger investment amounts and more extensive legal documentation.

Investors may request:

• board seats
• information and reporting rights
• preference shares (different classes of shares)
• liquidation preferences and anti-dilution terms

These terms can have a big impact on founder control and what you actually take home in an exit - so it’s worth getting advice before signing anything.

As with any share issue, you should also consider whether the proposed raise (and any marketing of it) triggers disclosure requirements and other rules under the Corporations Act.

7. Strategic Partnerships And Joint Ventures

Sometimes the best way to fund growth isn’t a cash investment - it’s partnering with a business that can provide distribution, manufacturing, customers, or resources.

Partnerships might include:

• co-marketing deals
• revenue share arrangements
• exclusive distribution agreements
• joint ventures for a specific project

The legal risk here is that “handshake deals” can lead to disputes about ownership, revenue splits, IP, and termination rights. Written agreements are essential.

Choosing The Right Funding Option For Your Business Stage

When you’re thinking about how to raise money for your business, it helps to start with your stage and constraints - not just what sounds attractive.

If You’re Pre-Revenue Or Early Revenue

• Bootstrapping may be realistic if costs are low.
• Friends and family funding is common - but document it properly.
• Angel investment may be appropriate if you have a strong growth plan.

If You’re Growing And Need To Scale Operations

• Debt can work well if cash flow supports repayments.
• Equity can help if you need a longer runway and faster scaling.
• Strategic partnerships can unlock growth without heavy dilution.

If You Need Funding For A Specific Asset Or Inventory

Some funding is best matched to an asset purchase (equipment, vehicles, stock). If the lender is taking security over goods or assets, you may need to consider PPSR issues and whether existing security interests already exist.

Doing checks can be a smart risk-management step, especially if you’re buying second-hand equipment or acquiring a business.

The Legal Steps To Take Before You Accept Funding

Raising money can move fast - especially when an investor is excited or you’re under pressure to secure funding. But from a legal perspective, slowing down and documenting the deal properly can save you major pain later.

1. Make Sure Your Business Structure Matches Your Funding Plan

If you’re raising equity (issuing shares), you’ll usually need a company structure. If you’re currently a sole trader or partnership, you may need to restructure before bringing in investors.

If you already have a company, make sure your core governance document is fit for purpose - often this means reviewing or adopting a Company Constitution.

2. Confirm Who Owns The IP (Before Investors Ask)

Investors and lenders will often want comfort that the business owns the intellectual property it relies on - like the brand, software code, designs, or key content.

If founders or contractors created key assets, make sure ownership has been properly assigned to the company (and that contractor agreements reflect this).

3. Use The Right Document For The Type Of Funding

One of the biggest traps we see is using the wrong document - or using a generic template that doesn’t match what the parties actually agreed.

Depending on the funding type, you may need:

• Loan agreement (if it’s debt): covering repayment, interest, default, and security.
• Equity documents (if issuing shares): covering price, class of shares, completion steps, and any Corporations Act disclosure or offer-structure requirements that apply to your raise.
• Shareholder governance: commonly a Shareholders Agreement to set expectations and decision-making rules.
• Confidentiality protection: where you’re sharing financials, customer data, or product plans, a Mutual Non-Disclosure Agreement can help protect sensitive information during discussions.

Even where there’s a short “heads of agreement” or term sheet, it’s worth understanding what is binding and what isn’t - and making sure the final documents line up with the commercial deal.

4. Understand Investor Rights Before You Agree

Equity investors don’t just get shares - they often request rights that affect how you run the business day-to-day.

Examples include:

• veto rights over key decisions (like issuing more shares, borrowing money, selling assets)
• information rights (regular reporting)
• pre-emptive rights (right to invest in future rounds to maintain their percentage)
• drag-along and tag-along rights for exits

These can be reasonable, but they need to be balanced so you can still operate and raise future funding.

5. If Security Is Involved, Treat PPSR As Part Of Your Due Diligence

In Australia, lenders can register security interests over personal property (like equipment, vehicles, stock, and receivables). This can affect your ability to borrow, refinance, or sell assets later.

If you’re borrowing against business assets (or buying assets that may already be secured), it’s worth understanding how PPSR registrations work and why priority matters. A practical starting point is knowing what the PPSR is and how it can impact your business.

6. Don’t Forget Privacy, Marketing, And Customer-Facing Compliance

Funding often means growth - more customers, more data, and more marketing activity.

If you’re collecting customer personal information (which is common for online businesses), you may need a Privacy Policy and compliant privacy practices.

If your growth plan includes hiring, it’s also a good time to get your employment arrangements right, including having a suitable Employment Contract for staff.

What Documents Should You Have Ready When Raising Money?

When funding is on the table, good documentation does two things: it helps you close the deal faster, and it reduces the chance of disputes later.

Not every business will need every document below, but these are common for startups and SMEs raising capital in Australia:

• Company Constitution: sets the governance rules of the company and can affect how shares are issued and transferred.
• Shareholders Agreement: sets decision-making rules, exit pathways, dispute handling, and protections for founders and investors.
• Loan Agreement (if borrowing): covers repayment terms, interest, default events, and whether security or guarantees apply.
• Mutual NDA: helps protect confidential information during fundraising conversations and due diligence.
• Privacy Policy: helps you meet privacy compliance expectations as you scale, especially if you collect customer data online.
• Employment Contracts and Key Contractor Agreements: helps protect IP ownership and clarify expectations as you hire to grow.

If you’re preparing for a more formal raise, investors may also ask for a cap table, financial model, and evidence that key IP is owned by the business (not by individuals).

Key Takeaways

• There are many ways to raise money, but the best option depends on your stage, cash flow, growth goals, and how much control you want to keep.
• Debt funding can preserve ownership but creates repayment obligations, while equity funding can provide runway but changes ownership and decision-making.
• Before taking funding, make sure your structure and core governance documents are ready, especially if you’re issuing shares - and be aware that share offers can be regulated under the Corporations Act 2001 (Cth), including potential disclosure requirements depending on how the raise is done.
• Use the right legal documents for the deal (loan documentation, shareholder arrangements, and confidentiality protection) so expectations are clear from day one.
• If security is involved, understand PPSR risks and how security interests can affect your assets and future fundraising.
• As you scale, don’t overlook ongoing compliance - especially privacy and employment arrangements that grow with your team and customer base.

This article is general information only and isn’t legal, financial or tax advice. Fundraising and share offers can be regulated in Australia, and the right approach depends on your business, investors and how the offer is made. Consider getting advice from a lawyer and an accountant (and, where relevant, a licensed financial adviser) before proceeding.

If you’d like a consultation about how to raise money for your business and get the legal setup right, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.