Unlocking The Potential Of Business Finance: A Guide To Available Options

Whether you’re operating a small New Zealand business or a large corporation, finance is an integral part of running a successful business. But how do you know which finance options are out there and which ones are best for your business? In this article, we’ll provide an overview of the various types of business finance available to help unlock the potential of your company.

Introduction to Business Finance

Small businesses are the backbone of the New Zealand economy, and access to capital is essential for these businesses to grow and thrive. There are a number of different financing options available to small businesses, each with its own advantages and disadvantages. The right financing option depends on the specific needs of the business.

These include loans from banks or private financial institutions, such as Alternate Finance, venture capital, angel investors, and government grants. Each source of funding has its own eligibility requirements, terms, and conditions.

Choosing the right source of funding is often underestimated. It’s an important decision because the wrong choice can lead to equity dilution and having board members who act as a hand-brake and slow you down in growth. Getting funding can sometimes lead to far too much red-tape and a distraction from your strategic direction, and private lending can sometime result in high interest rates, strict repayment terms.

However, the right choice can provide the necessary capital to help a business grow and succeed.

This guide will provide an overview of the different types of business finance available to small businesses in New Zealand. We will discuss the advantages and disadvantages of each option so that you can make an informed decision about which type of financing is right for your business.

Loans and Lines of Credit

Loans are a popular financing options that can provide working capital for businesses. Alternate Finance is an excellent choice for this.

Loans are typically fixed-term, meaning that the borrower will make set monthly payments over the life of the loan. The interest rate on a loan is also fixed, so the borrower knows exactly how much they will need to pay back each month.

Lines of credit from the bank, on the other hand, are revolving, meaning that businesses can borrow against them as needed and make payments when they have the funds available. The interest rate on a line of credit is usually variable, so it can fluctuate based on market conditions.

Both loans and lines of credit can be used for a variety of purposes, including funding inventory or equipment purchases, covering operational expenses, or financing expansions. Before taking out any type of loan or line of credit, it’s important to understand the terms and conditions as well as the repayment schedule. Not all lenders are created equal, so it’s important to shop around and compare offers before making a decision.

Government Grants

There are a number of government grants available to businesses in New Zealand, for example, there are grants available from the Business.govt.nz

The Minisitry of Business supports New Zealand businesses to grow, innovate and raise capabilities. Here you’ll find a range of grant programs, including those for businesses in rural areas, women-owned businesses, technology grants, and businesses that are expanding or creating jobs.

Be careful of applying for these grants. You may invest far more than it’s worth and the resource you’ll have to dedicate to following the guidelines of the grant, once you have it, can distract you from running your business.

Investment Capital

Investment capital is the money that businesses use to grow, expand, and create tangible assets. It can come from a variety of sources, including venture capitalists, angel investors, and private equity firms.

Businesses need investment capital to buy new equipment, hire additional staff, or open new locations. Without it, businesses would be limited in their ability to generate revenue and create value for shareholders.

Venture capitalists are typically interested in high-growth businesses with a large potential market. They tend to invest early on in a business’s lifecycle in exchange for an equity stake in the company.

Angel investors are individuals who invest their own personal money into businesses. They usually do so because they believe in the business’s potential and want to help it succeed.

Private equity firms are institutions that invest money on behalf of their clients. They typically invest later on in a business’s lifecycle and often do so through leveraged buyouts (LBOs).

Crowdfunding

Crowdfunding can be a great way to raise money for your business. There are a number of platforms out there that allow you to set up a campaign and solicit donations from the general public.

The key to successful crowdfunding is to create a compelling campaign that resonates with potential donors. You’ll need to clearly explain what your business does and why you’re raising money. Be sure to set a realistic goal and offer perks or rewards for different donation levels.

Once your campaign is live, it’s important to actively promote it through social media and other channels. The more people you can reach, the better your chances of meeting your fundraising goal.

If you’re looking for an alternative to traditional financing, crowdfunding could be a great option for your business. With some planning and effort, you can unlock the potential of this powerful tool.

Accounts Receivable Financing

Accounts receivable financing is a type of business funding in which businesses can borrow money against their outstanding invoices. This can be a great option for businesses that are struggling to make ends meet or that need a quick infusion of cash.

There are a few things to keep in mind if you’re considering accounts receivable financing. First, it’s important to understand how this type of funding works and what the terms and conditions are. Second, you’ll need to have a good handle on your accounts receivable and make sure that you’re able to repay any money you borrow.

If you’re looking for a way to get your business the cash it needs quickly, then accounts receivable financing may be the right option for you. Just be sure to do your research and understand the terms and conditions before signing on the dotted line.

Invoice Factoring

Invoice factoring is a type of business financing in which a company sells its invoices to a third-party funding source at a discount. The funding source then collects the full amount of the invoice from the company’s customer. This type of financing can be a useful way for companies to obtain working capital, as it allows them to sell their invoices at a time when they may need cash flow.

Asset Financing

Asset-based financing is a type of business financing that uses the company’s assets as collateral. This can include accounts receivable, inventory, equipment loans, and real estate. Asset-based lending is often used by businesses that have difficulty qualifying for traditional loans.

One advantage of asset-based financing is that it can provide access to capital that would otherwise be unavailable. This can be especially helpful for businesses with high growth potential but limited operating history. Additionally, asset-based financing can be flexible, with terms and conditions that can be tailored to meet the needs of the borrower.

Another advantage of asset-based financing is that it can be less expensive than other types of funding. This is because the lender takes on less risk when lending against collateral than when making an unsecured loan. As a result, asset-based loans often have lower interest rates than unsecured loans.

There are some disadvantages to asset-based financing as well. One is that if the business fails to make payments, the lender can seize the assets used as collateral. This can put the business in a difficult position and may lead to its closure. Additionally, asset-based loans typically have shorter repayment terms than traditional loans, which means they may not be suitable for all businesses.

Asset-based financing can be a useful tool for businesses that need access to capital but may have difficulty qualifying for traditional loans. It is important to weigh the advantages and disadvantages of this type of funding.

Conclusion

Business finance is a complex and ever-changing field. However, with the right information and guidance, it can be used to unlock the potential of your business. By exploring all of the options available to you, understanding their impact on your business, and taking time to find the best solutions for your specific needs, you can use business finance to help grow and secure your future success. If you’d like to discuss business finance in more detail with one of our team, please reach out.