Running a business isn’t always easy, especially in the first few months. In fact, one of the biggest challenges business owners come across is how they can fund their small business. Thankfully, you’ve got plenty of options at your fingertips – it’s just a matter of choosing the right one for your business. 

For example, if your business was affected severely by the recent lockdown, there are certain grants available depending on how much it affected your performance and finances. 

Another example is if you’re just starting a new business or startup. In this case, you might be leaning more towards investor pitching. 

So, let’s go through 5 ways you can fund your small business in Australia. 

Grants

The pandemic had a large impact on the economy and small businesses, so grants are definitely not an unfamiliar concept to business owners. 

For the past few years, grants have been provided to help small businesses and startups get back up on their feet when things were out of their control, or they were forced to shut down. 

Grants essentially give you that extra financial help with no expected repayment. It’s generally offered to groups of people or businesses who may find it more difficult than others to hit the ground running due to certain barriers or circumstances. 

For example, COVID grants helped businesses cover costs like operations and wages during lockdown when businesses had no choice but to close temporarily. 

How Does It Work?

The process with grants is quite simple. You start by looking for the type of grant that is best suited to your needs (for example, flood disaster recovery), and you make an application. From there, the government will assess your circumstances and decide whether your business can receive financial support. 

Types Of Grants

There are lots of different grants available to small businesses, but this really depends on your specific circumstances. 

  • NSW Business Grant For Startups – if you’re running a startup and income isn’t really a realistic expectation just yet, you may be eligible for certain grants to help you out. NSW 
  • Storm and Flood Disaster Recovery – if your business was affected by recent storms/floods, you could be eligible for this kind of relief. It intends to help you cover cleaning costs and operations. 

If you’re not too sure what kind of grant you might be eligible for, you can read more about them here

Loans

If you’re starting a business, one of the most popular ways to hit the ground running is by taking out a business loan with your bank. This makes it a lot easier to set everything up and get things moving in the initial stages, because the money is practically instant. 

However, unlike a grant, this money has to be paid back, and you have to be wary of interest rates depending on which bank you’re with. 

To manage this, you need to understand your business’ finances and how much you’re prepared to take out on a loan. For example, think about the following:

  • How much am I earning currently?
  • What will my expenses look like further down the track?
  • Am I thinking of growing my team?
  • How much do I need for the first few months just to get things up and running?
  • Do I have assets? Will I need collateral? 
  • How long will I need to be able to pay this back? 
  • Are there any factors that might prevent me from being able to manage this loan e.g. credit score

These types of questions will help you decide which type of business loan is best for you, or if you should look at other options for funding your business. 

Financial Documents

Funding your business through a loan means you need to be hypersensitive to your business’ financial needs. For example, you’ll need to look at your tax information and cash flow statements. 

It’s good business practice to speak to an accountant about your business’ current state and how this might play out if you choose to take out a loan. 

Investor Pitching

Investor pitching is incredibly common and important in the startup world. It’s a way of funding your business, but to achieve this, you need to successfully ‘pitch’ to investors about your business. 

Put simply, you want to convince these investors that your business is going to be worth their money. 

If you’ve done this well, you can rest assured that the first few months of your startup journey will be a little more financially stable! 

What Documents Do I Need?

When it comes to investors, you need to prepare some key legal documents to set out the terms of your relationship with them. 

  • Term Sheet – this sets out the terms that you and your investors agree upon when you first take them on board. For example, how much money they’re investing and how much they will own. 
  • Share Subscription Agreement – this should set out the important details around shares and how they will be issued to the investors
  • Shareholders Agreement – this will set out what the shareholders (so, including the investors) are responsible for and other matters such as voting rights and dispute resolution. 

Tax Cuts

By 2023-24, Australian SMEs will benefit from generous tax cuts for economic recovery following COVID-19. Thankfully, this makes things a lot easier on your end as the business owner. 

This means you can focus your financial resources on rebuilding your business. You can read more about this here

Other Methods

There are, of course, other options available to businesses who are in need of funding. While methods like loans and grants are among the most common, other methods might be a little less daunting, especially if you’re just starting out. 

Invoice Financing

Invoice financing is a way of managing any cash flow issues you might be experiencing, but it doesn’t necessarily act as a means of financing your business. So, how does it work?

If your business has unpaid invoices (meaning you are owed money), you can get a third party to pay the owed amount to you instantly in exchange for a portion of that money, rather than waiting for the customer to pay within the required time. 

You can think of it as ‘short-term borrowing’. 

This might fix any hiccups in your cash flow, but it isn’t a replacement for income

Friends and Family

While borrowing money is usually associated with banks and accountants, don’t forget that you can always ask for help from those closest to you. If you have a network that is willing to help out, this could be great for your business in the early stages. 

It might be best to put these arrangements in writing to avoid any issues later on. 

Savings

There is, of course, the option of tapping into your own savings. After all, a business is your investment, so it makes sense to have that money come from yourself. 

If you do have enough savings, you can use some of this to fund your business – at least for the first few months or so. The upside is that you won’t need to worry about repayments, interest rates or any bad blood with family members that you borrowed money from. 

But of course, you should still be wary of the risks involved in any business journey when choosing how much to invest. 

Next Steps

Starting a business is exciting news, but it’s important to take a step back and think carefully about the best way to finance your business. This means you’ll need to consider which financing option will manage your risks well, cover your costs for the first few months and ensure you’re not drowning in debt later down the track. 

If you need help, Sprintlaw has a team of friendly lawyers who can help you out. You can reach out to us at team@sprintlaw.com.au or contact us on 1800 730 617 for an obligation-free chat.

About Sprintlaw

Sprintlaw is a new type of law firm that operates completely online and on a fixed-fee basis. We’re on a mission to make quality legal services faster, simpler and more affordable for small business owners and entrepreneurs.

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