Where to find funds to grow your firm
Ask an Expert
Q: I need to raise funds to upgrade the IT infrastructure for my small business. What’s available and how do I access it?
A: The default for most SMES in New Zealand is borrowing money or ‘debt’, usually from banks. Owners often leverage equity in their house to secure the loan, which is almost always cheaper than finance that is unsecured or undersecured.
Finance companies are another option, though usually used for a specialised purpose, such as vehicle or plant finance, and come at a higher cost than banks. Major suppliers may also offer beneficial payment terms, or even loans for capital purchases to be repaid on agreed terms. For example historically pubs received loans from major breweries to install their taps, and the loans were repaid from future beer purchases.
The other option is equity, where you sell part of your business, or give up some of the equity for capital. It’s worth considering if the amount you need to raise is more than you can get from your own sources or borrow from banks or finance companies.
Depending on where your business is at in its life cycle, you could also consider selling shares to key employees who know the business and are very committed. though this comes with taxation considerations and requires an honest and transparent process.
Then there are venture capitalists and private equity which provide funds in return for part ownership of your business. Likewise, angel investors are individuals who look to invest in an early stage business they see potential in.
You’ve also got equity crowdfunding, online capital raising forums that profile your business and rely on online investor networks to raise capital such as Pledgeme and Snowball Effect. Businesses are also turning to rewardsbased crowdfunding to raise funds where you ‘‘seek donations’’ to launch a product or process. And then there are government grants. Information can be found on business.govt.nz.
Aaron Titter is an advisory partner with BDO Wellington.