How much do you need to borrow

Before deciding on the type of finance, you need to know how much money you’ll need. Here’s how you can get an idea based on what you’re doing:

  • Starting a business: add up your setup costs such as rent, equipment, inventory, legal and accounting fees, wages and super contributions (including your own)
  • Buying an asset: use the contract to determine the purchase price
  • Boosting cashflow: use cashflow forecasts and a financial plan to pinpoint shortfalls

Compare this amount to your available cash to gauge how much you might need.

If the number feels high, you may want to consider cost-saving strategies or keep working your current job for extra income. You could also explore government grants for eligible businesses.

Debt finance

Debt finance involves borrowing money that you repay with interest. Common options include:

  • Bank loans
  • Overdrafts
  • Mortgages
  • Credit cards
  • Equipment leasing and hire purchase

An advantages of debt finance is you don’t share ownership or profits with others. Some interest fees and charges may also be tax deductible (check with your accountant).

Considerations for debt finance

  • New businesses may find it hard to secure debt finance without accurate financial records or a comprehensive business plan 
  • Regular repayments, fees and interest could strain your cashflow, especially during slow periods
  • Using assests as loan security could put them at risk if you're unable to make repayments

Equity finance

Equity finance involves raising money by selling a stake in your business. Investors become part-owners and share profits. Sources of equity finance include:

  • Family and friends
  • Crowd funding (people donating money to the business)
  • Business angels (individuals investing up to $2 million in start-ups)
  • Venture capitalists (investors funding $2 to $10 million in operating companies)
  • Public floats (issuing securities to the public e.g. shares) 

An advantage of equity finance is freedom from debt and no repayments.

Considerations for equity finance

  • Investors share ownership and may influence business decisions
  • Raising funds from family or friends can strain relationships
  • Competing with other business for investment may make securing funding harder