In the last few years, the total number of startups in Australia has risen dramatically. Funding poured in, with some big startups raising record-breaking amounts.
However, capital has remained elusive for most small businesses looking to expand while fighting a never-ending battle against the COVID-19 pandemic.
Financing for small businesses is typically difficult to come by. Most bank loans require applicants to have excellent credit, and even then, approval is not guaranteed.
According to a YouGov survey conducted on behalf of Apricity in April 2021, while the big four banks remained the most common source of funding, more than one in every five SME owners (or nearly half a million businesses) were unaware of any alternative finance sources other than traditional lenders.
In this week’s Let’s Talk, we asked experts to discuss alternative lending methods that are accessible and may be a better fit for business owners than a traditional bank.
Sam Kothari, Head of Growth, ANZ at Airwallex
“International players are investing more aggressively in Australia’s startup ecosystem — now’s the time to craft a solid pitch early on with a clear business plan, introduce your value and plan for expansion from the get-go.
“If securing a bank loan proves difficult, there are alternative funding options to raise capital for expansion, like bootstrapping (using personal funds), revenue financing and crowdfunding.
“Start by looking inward, and put the word out to your network for potential investors. By the same token, startups should also be on the front of proactive engagement with public and angel investors that align with their beliefs and mission.
“It’s important also to consider how funds will reach you. For example, Airwallex has helped startups settle funds from investors, often in USD, and convert it back to AUD at incredibly competitive FX rates.
“Assessing each step of the funding process helps to extend the runway and ensure investor dollars are spent on growing the business and supporting your overall vision for expansion.”
Jon Sutton, CEO, ScotPac
“Business owners know how challenging (and time-consuming) it can be to qualify for bank funding. Happily, there are fast and secure options outside the traditional bank loan.
“ScotPac has provided these alternatives since the 1980s. We’ve helped thousands of small business owners unlock the value in their business assets, mainly by providing them with debtor finance, trade finance and equipment finance.
“Throughout the pandemic, we supported more businesses than ever before, but it became clear to us just how many small business owners have significant unmet funding needs. That’s why we’ve launched three new solutions to meet an even broader range of business needs.
“This expanded offering gives us the power to get many more deals over the line quickly for SME owners, no matter the size of the agreement or the business circumstances (whether you need to purchase stock, invest in vehicles and equipment or meet cash flow demands).
“ScotPac’s Home Loan for Business Owners is property-secured lending allowing SME owners to use the equity in their home to help fund the business, with bundled savings if they use additional ScotPac solutions such as invoice, asset or trade finance.
“The ScotPac Business Loan is a property-secured facility that allows SME owners to unlock equity in their property to fuel business growth or refinance from other business loans.
“Competing with the more traditional bank overdraft, the ScotPac Business Cash on Call gives fast and flexible funding as a property-secured working capital solution to smooth out cash flow and cover unplanned investments and expenses.”
Dermot Butterfield, Chief Executive at Wych
“As a FinTech startup, Wych considered many options when we were looking to access growth capital. In the end, we settled on a SAFE note as part of our capital raise with an equity crowdfunding platform, VentureCrowd, a Simple Agreement for Future Equity. SAFE notes are not debt, and they don’t carry interest.
“And as there is no interest applied to a SAFE note, the timeline is flexible. We found these to be considerable benefits compared to bank loans or convertible notes. Sharing equity is not for every business, and ultimately that is what a SAFE note is about.
“Their flexibility allows you to access many types of investors, giving your business the best chance at expansion. That is why we chose VentureCrowd; working with their team has been a great experience as they enabled us to access both wholesale investors and crowdfund options.”
Chad Hoy Poy, National Lending Manager, WLTH
“Whether you don’t qualify for a loan or are simply curious about alternative routes, expanding your offices without a traditional bank loan is possible. – Rent to Own In a rent-to-own arrangement, you pay the owner an option deposit, giving you the option to purchase a property after renting it for a set period that spans from one to three years. – Owner Financing In some cases, the owner of the property you are renting may be willing to sell it to you.
“This usually works by making monthly repayments rather than to a bank. – Private Loan Aussies with low credit scores may have better luck seeking out an investment from a lender or a peer-to-peer lender. – Pay Cash The last option is paying for your loan in cash. Making a cash purchase can help you save on closing costs and interest payments.”
Nick Frandsen, Co-Founder at Dovetail
“There are many avenues available to startups seeking capital beyond your traditional bank loan. One of the lesser-known options is venture studios. Like venture capitalists (VC), venture studios invest people, time, and often capital into startups to help them succeed. Unlike traditional VCs, however, venture builders help burgeoning startups grow, particularly by supporting those that lack expertise in a particular area.
“Referred to as “the new breed of VCs”, venture studios bridge the intersection between an agency, incubator, and a VC, by revolutionising the startup ecosystem and how entrepreneurs approach their business. Overseas and locally, this unique hybrid model has proven successful, having built some of Australia and New Zealand’s fastest-growing startups, including Provider Choice, Marmalade, and Runn.
“By collaborating with a venture studio that aligns with your businesses’ values, goals and vision, startups can find product-market fit and scale faster than they could independently.”
Matt Allen, CEO, Tractor Ventures
“When you’re growing purposefully, putting your new revenue into acquiring more customers, it’s an exciting time, but also frustrating. Existing lenders look backwards to determine how much they can loan you.
“Tractor Ventures is an Australian investment company offering revenue-based finance to founders growing businesses with at least $50k a month in revenue. As your company grows, you should remember that loans allow you to retain the future value while the business pays for it now, something to consider when your revenue growth and confidence is high!”