Who can help you with funding for your business?

Setting up a new business can require a significant amount of money for things like rent, equipment and supplies. If you can’t fund these from your own savings, you’ll need to explore other sources.

Debt capital is the most common way for businesses to raise cash. It’s simply money that you’ve borrowed. It could be short-term borrowing (like an overdraft for extra stock), or longer term loans (for buying new equipment or a building). The most popular sources of debt capital are:

• Friends and family. Often a first option as they are easy to approach. But take care - owing money to people you know isn’t always a good idea.
• The bank. Borrowing money against your house is one of the most common ways of raising capital for small businesses, as it’s often the cheapest. You might also consider asset finance, where you borrow cash over the value of an asset, work in progress or stock.

If you need larger amounts of money, you could consider equity capital. This is where you sell part of your business to one or more investors to raise cash. In effect you give up some of the equity in your business for capital to help fund growth. More often than not, you need substantial amounts of capital to make it worthwhile to the investor.

Angels are people (often other business owners) who think your business is promising and are willing to invest in it. They usually invest in businesses they’re familiar with.

The great thing about angel investors is that they’re usually keen to invest at an early stage, which can help with your start up. They also bring their own experience to the table, which is knowledge you should take advantage of.

Visit the Angel Association New Zealand’s website for an overview of angels and what they can provide.

These are investment companies or fund managers who provide cash in return for part-ownership of your business. Venture capitalists differ from angel investors because they’re typically looking to invest larger sums of money, which could be above and beyond what you need, and their requirements are much tougher. They may also not want to play such an active role in the management of your business, but possibly take a role on your board so they tend to look at larger businesses.

For more information on the venture capital environment visit the NZ Venture Capital Association website. Also enquire through business networks such as the Employers and Manufacturers Association or the NZ Chamber of Commerce.

It’s well worth checking out whether or not your business qualifies for government funding. Mostly, this type of funding comes in the form of grants.

At times large companies (it could be a customer or supplier of yours) invest in smaller businesses that they have a stake in seeing grow and expand.

Growing in popularity are online capital raising forums which profile businesses seeking capital and then rely on the online investor network to raise the capital required.

Regardless of where you’re looking to get the capital from, the more prepared you are the better your chances will be.

These tips will help you present a strong business case to whoever you are talking to:

• Speak to advisers – a business specialist, lawyer and accountant are all people you should consult about finding investors. They’ll have good contacts and advice.
• Build your business case – in the next week of the ANZ Business Boot Up programme you’ll work through creating your own business plan. You’ll need this plan for investors to understand your business. Investors want to know why they should invest in your business. Your business plan should provide a compelling reason.
• Get your financials sorted – present your actual and projected cash flow and profits. Make sure you outline your assumptions when it comes to your forecasts.
• Prep your business – get your processes and systems running smoothly, make sure you’re monitoring your KPIs and demonstrate how you’re providing an excellent customer experience.
• Show you’re special – highlight what makes you stand out. Showcase your competitive advantage and point of difference. Demonstrate how you’ve protected your IP and if possible, show how your business is scalable.
• Explain your team – show that they’re experienced, skilled, and ready for the journey. Also be upfront about what holes need filling - it’s possible the investor can help you fill them.
• Do your homework – don’t grab at the first person to offer money. Make sure you’ve done your due diligence on all potential investors so you can decide which will work best with you and your business.
• Consider the risks – if you decide on the equity capital option you are going to have to hand over some ownership of your business. Make sure you’re comfortable with this. Remember though that you may prefer to own 40% of a business worth $2,000,000 than 100% of a business worth $150,000.