For small business owners, financing remained a perennial concern, since funding is required to develop a business. Whether there is a requirement of infusing cash at a critical juncture of growth, or whether there is a need for startup capital, reliable funding options remains crucial for the success of a business. Thus, there has been a growing shift in trends in Australia from the conventional mode of financing to alternative financing options.
Downward Trends for Financing
Though several small businesses are still turning to banks for funding, since the economic downturn in 2008, it is becoming increasingly difficult to get approval for bank loans. Small business owners find a lot of difficulties to approach traditional lenders and banks as a huge number of applications are being turned down quite regularly.
Further, securing finance through equity investments remained another option for SMEs earlier. The equity investments are done through investment or partnership options with either venture capital firms or angel investors. The reason for the lesser popularity of equity investments seems to be forgoing a lot of control by the investors to secure finance against equity investment.
Upward Trends for Financing
The more commonplace form of funding option at present in Australia is an alternative form of financing. Small businesses can consider options like peer-to-peer investment or crowdfunding amongst others. Crowdfunding occurs by using related websites to find a financing option and is achieved through many people present on the platform who offer small amounts, receiving rewards in return.
On the other hand, individuals and businesses can make peer to peer investment through platforms helping investors to find people who will be lending. Such approaches may stop borrowing from banks, as peer to peer lending investment is a very low-interest option. Further, the peer-to-peer funding option increases the comfort level of the business owners who get frustrated in gaining access to traditional financing options like banks. However, there are certain risks in peer-to-peer lending as investors do not get a guarantee that invested money will be returned if such platforms fail to function.
Moreover, for small scale businesses, there are other novel forms of securing finances in Australia, that are either newly introduced or are reintroduced. One such option remains invoice financing, which remained popular for a long time, has experienced considerable growth in recent times. Such forms of financing are gaining traction for extending loans to small scale businesses.
Further, a few alternative lenders are there, who offer a business line of credit to the small business owners. Such credit option remains a revolving option allowing the borrower making transaction with an approved credit limit. The borrower only needs to pay for the drawn funds that make such type of financing a very cost-effective solution for supplying fund.
Besides, options are there for equipment financing, which helps the prospective buyers access business loans quickly for purchasing equipment, new vehicles or technology. Typically, in such form of alternative financing, before sanctioning the loan amounts, the lenders assess the prevailing financial condition of the customers.
