Unleashing the Power of Business Finance
Inadequate capital is a common issue among most small businesses and start-ups. Studies show that approximately 79 percent of new ventures or companies fail due to little capital. Besides about 77 percent of business owners use their personal savings to run the business for the first few months.
If you’re planning to have an investment or expand an existing business, it’ll be good to consider the best business finance. Australia has a wide range of funding options and external loans to enhance your cash flow and business success.
This article explores the top financing options for business owners in Australia. You’ll also learn about the pros and cons of the different business finance options.
Credit Cards
Credit cards remain a popular short-term loan ideal for small to medium-sized businesses. Various financial firms offer credit cards with varying conditions based on repayment capabilities and usage.
Thus, it’ll be good to consider credit cards with interest-free days if you can repay the loans faster. Ensure to question the financial firm about the penalties, interest rates, and other vital details about the loan.
Pros
- Ideal for small and start-up business
- Doesn’t involve a long and tiresome process
- Various options are available to choose from
- Slightly lower interest rate
- The best option to get immediate cash for your activities
Cons
- Limited for small businesses or start-ups due to the amount the firm provides
- Hefty penalties for delayed payments
Government Grants
Experts reveal that government grants are the best financing option for businesses and organisations. The government or local authority provides the capital to fund or reimburse activities meeting its objectives and priorities.
You can use the finance to start a business that can stimulate the economy. Government grants are the most sought-after funding option, as you don’t have to pay back the funds. However, the funding comes with fierce or stiff competition.
Pros
- Non-repayable
- Are widely available across all industries
- Boost your credibility to apply for more funding
Cons
- Highly competitive
- Involves a long and tedious application process
Full-drawn
It’s an ideal long-term business financing option for your business. You can use this funding option to purchase property or machinery. Most traders or entrepreneurs in Australia prefer this option as it doesn’t have a maximum borrowing limit.
Besides lacking the maximum borrowing limit, you get all the cash upfront. Despite the loan having a fixed term, you can negotiate with the financial firm for a flexible repayment plan. In addition, the interest-only aspect of a fully drawn advance makes it an extremely lucrative option for smaller businesses.
Pros
- Best finance option for long-term projects
- Doesn’t have a maximum borrowing limit
- Allows you to get all the cash upfront
- Highly customisable, allowing you to choose flexible repayment schedules
- The best and cheaper option for smaller businesses
Con
- It’s a fixed-term loan
Cash Flow Lending
Cash flow lending is an unsecured loan that offers immediate cash to cater to small routine expenses. You can use the funding for expenses like rent, payroll, and refilling stock. Experts reveal that it’s the best financing option if you don’t have a good history of repayment or strong assets.
You can easily get money for running your routine activities despite having an outstanding credit card debt or a low credit score. Nevertheless, you may incur higher interest rates when repaying the loan.
Pros
- Offer instant cash for small routine expenses
- The best alternative when you lack a good repayment history
- Allow you to borrow even having a lower credit
Con
- Higher interest rates than most secured loans
Trade Finance
How does trade finance work? When purchasing products or stock overseas, the bank will pledge to pay the supplier directly. This financing option allows the bank or financial firm to pay for the goods on your behalf.
However, you’ll have to meet the bank’s requirements to get the approval. You can opt for this option to reduce international trading barriers.
Pros
- The best financing option when trading internationally
- Helps to maintain or enhance your cash flow
- Reduce international trading barriers
- It’s a low-risk option
- You can use it to get a wide range of products
Cons
- Only ideal for established businesses
- Some cases of delayed shipments
Debtor or Invoice Finance
It’s the best short-term loan option if you’re looking for cash to deal with unexpected or everyday expenses. Debtor finance allows you to borrow money against the accrued income, making it useful for established businesses.
The bank will provide a huge part of your invoice value (approximately 80-85%) upfront and the rest after paying the interest. The option offers flexibility as you’ll pay the interest depending on the invoice period.
Pros
- Ideal when looking for quick cash at hand
- Flexible interest rates
- Help relieve or deal with short-term needs
- Offer a variety of options
Cons
- Only suitable for established businesses
- Includes due diligence and additional service fees
What are the advantages of Government Grants over Commercial or other forms of Business Loans?
Whether you want to support an idea or continue your venture, government grants offer the best means to enhance your success. Government grants offer various advantages over other business loans or financing options. Let’s look at the advantages of government grants:
Government grants are non-repayable
The biggest benefit government grants have over other financing options is that you don’t have to pay them back. These grants are like donations from the government. Nevertheless, you must have an idea that fulfills public interest or policy to qualify.
Government grants are Widely Available
Unlike the other forms of business loans, government grants. You can use government grants in Australia across all industries, including commerce, education, and healthcare. Thus, you can use the funding to enhance your business or project in various sectors.
Government grants allow you to secure multiple grants
With the government not having limits, you can apply for as many applications as you want. The numerous applications can make you qualify for or get multiple grants for different projects at once.
Government grants boost your credibility
With the fierce competition, qualifying for the grant usually enhances your credibility. The credibility places your business in a good position to apply for more funds in the future. In addition, having closer government ties makes customers inclined to your services or products over your competitor.
Conclusion
Choosing the right business finance is key to your success. It allows you to get adequate funds to start and run your business. With the numerous business funding alternatives available in Australia, it’s wise to research the pros and cons of each alternative.
The research helps you choose one that suits your financial needs and objectives. Government grants stand out as the best option as they’re non-repayable, widely accessible, and boost your business credibility. You may seek professional guidance to help you make an informed choice.
