Small and medium enterprises often struggle to fulfil their dreams of expansion due to a lack of finance. The need for more working capital is a common requirement, and one that causes most expansion problems if not planned for correctly.
The first step is to determine if the finance is likely to be needed for short or long tem circumstances.
Short-term requirements might be to cover extra stock purchases or debtor variations, while long-term finance might be necessary for capital expansion such as purchasing new building works or major equipment purchases.
Flexible alternatives to borrowing like leasing or renting equipment or vehicles might also become more viable options as your cashflow stabilizes.
There are many different forms of finance:
Realistically, finance that most small to medium businesses are interested in will be available in three major forms:
Shareholders' equity finance is extra capital provided by you, the owner; or investors into the business, often in exchange for some control or input of the business.
The two main external providers of equity finance for private businesses are venture capitalists and business angels.
Venture capitalists typically take on very specific, limited range of investment, often large amounts of funding used for unique, high growth businesses destined for flotation on the stock market. For more information about venture capitalists see the Australian Private Equity & Venture Capital Association Limited’s website .
Business angels are more likely to consider investing in a broader range of businesses, including lower-risk businesses that are still in the early stages of potential. They will often expect to make their own skills, experience and contacts available to the company.
Debt finance, commonly called borrowings, is the most common form of finance available to most small businesses. Debt finance is money borrowed by the business, maybe a loan from an owner of the business, or sourced from an external resource such as a financial institution.
Every financial institution has criteria for assessing applications for finance. These criteria are usually based around the concepts of character, cash flow, and collateral.
You will need to be able to answer the following questions before you approach a lender:
As a potential borrower you need to be sure you have sufficient evidence and supporting documentation to present your application in the best possible light.
Whether raising the funds from a bank or other financial institution, or an investor, you will need to work on a considered presentation of all your detailed financial information, including an up-to-date business plan. Ultimately, the lender will consider the risks and base their assessment on the information you present to them.
It may be time for you to look at grant and other aid assistance programs. There are government departments and non-government organisations that offer funding to growing businesses, particularly if you are aiming to develop in the areas of innovation, research, technology and exporting.
See Grantslink
