Sources of capital for your young business or start-up

Your financial institution is the most obvious first stop in searching for the funding for your business, but do not assume that a start-up loan is easily obtainable. The banking system is emerging from an extended period of uncertainty, and start-up businesses remain one of the riskiest propositions for banks.

If you or your business partners do not have a track record in business or if your business’s income is dependent on seasonal demand, securing funding will be difficult.  However, if you can present a sound business plan and a low risk profile, financial institutions will find you more attractive.  Monitor the interest rates offered and carefully consider the loan terms.

Remember that financial institutions, like all investors, will take their time to make a decision, but will withdraw their support swiftly if they feel they are at risk.  “We had a ‘near death’ experience a few years ago when our bankers pulled a large facility with 90 days notice,” says Anthony McDonald, co-founder of Real Estate Media.  “We very quickly learned how to pitch to banks and despite a lot of interest, it took us exactly 90 days to get the final approval.  You must treat your financiers as shareholder – if they can’t articulate your strategy, point of difference and growth plan, you’re setting yourself up for failure.”

Business Angels

There are no specific rules on who can be a business angel – they could be a former employer or a cashed-up acquaintance, but the majority are on the lookout for similar kinds of businesses.  Business angels will want to invest in fast growing companies that will provide them with a positive return on their funds.  In return, they ask for a share of your business, so be prepared for the management dynamics of your business to change.  To offset this loss of complete control, you will gain invaluable knowledge and experience as well as extra funds.

This does not mean, however, that a business angel will be prepared to carry the load for your business.  They will provide the odd word of advice, not draw up your entire strategy and drive it.  Make sure you have the skills and knowledge on hand to run the business, as well as a well-defined plan.  “If you are light on experience in certain areas, employ or bring in the right expertise that can complement your skills and give the investor confidence,” advises Reuben Buchanan, co-founder of Wholesale Investor and a leading expert on capital raising.

Venture Capitalists

Much like business angels, venture capitalists will ask for a a share of your business in return for funding, usually utilised for for research and development or expansion.  Unlike business angels, they will not provide much managerial assistance, and are looking for fast-growth, high-return businesses, which excludes most start-ups.

However, if you have big plans, operate in a specialist field, and have an exit strategy in mind, it is worth getting in touch with a few venture capitalists.  The Australian Private Equity and Venture Capital Association maintains a list of venture capitalists.  If you cannot immediately show a venture capitalist a bold, innovative business plan that provides a clear return on their investment, there is little chance of engaging in a dialogue with them.

“You must have a unique selling proposition – in either product, distribution, profit, returns, management, location, contacts, technology, barriers to entry, patents or other unique competitive advantages,” says Wholesale Investor’s Buchanan.  “Approaching investors unprepared is probably the single most common reason why entrepreneurs fail to attract capital.  Some investors see 10 or 20 deals a week.  If your proposal does not include all of the above, chances are you won’t get past first base and they are immediately onto the next.”


It can be difficult to find a grant for business start up, as most are usually aimed at business expansion, research and development, exporting, or innovation.  Despite this, it is worth investigating grant options at federal, state and even local council levels to see if assistance is available.  Every business grant, no matter what it is for, is keenly sought-after by entrepreneurs, so be prepared to have a great case to put forward.

Asset Finance

If you require start up funds quickly, but have clients with lengthy payment terms, you may be able to borrow against something tangible, such as machinery, or intangible, such as an invoice.  Effectively, equipment can be loaned and have their cost spread out over the useable life.  Asset finance can also boost cash-flow rapidly, but be cognisant of the interest rates charged.

Credit cards or savings

Funding a business using a credit card is not ideal, but some start-ups have found that with a carefully-considered low interest rate, it can provide a timely cash boost in certain circumstances.

Finance via savings is a more preferable option if you do not want to rely on others and it can prove to be a good business decision.  With your own money on the line, you will be more motivated to push your business forward into profitability.  However, re-mortgaging your primary residence and investing your entire life savings into a new business idea is not generally recommended.

Family and friends

Finally, there is the option of turning to your nearest and dearest to help get your business off the ground.  Many successful entrepreneurs have been given financial assistance by friends and family in their formative years, so do not feel afraid to utilise this option.

However, be aware of potential pitfalls.  Innumerable friendships have soured over money and placing the financial health of your family at risk for your business venture should be avoided.  Friends and family may also not give you the kind of scrutiny you would find at banks or other investors.  Treat them like any other investor – draw up a loan agreement and explain exactly when and how the investment will be repaid.  Ensure you respect their investment.

On the upside, having those closest to you involved in your business can provide much – needed support and can help strengthen friendships.  It is also unlikely that you will find bailiffs seizing your assets if you miss a loan repayment.