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  • Writer's pictureAshley Van Rosmalen

What Are the Types of Business Finance?

This blog is a platform where I can share my industry knowledge and experience at no cost to consumers & offer practical resources. I am Ashley, Director and Head Broker, and am looking forward to sharing some useful information in an easy to digest, jargon free manner.


Debt & Equity Finance


Debt and Equity are the two ways you can secure your business finance. Debt finance is when you borrow money from a third party and repay the principal borrowed, plus additional fees and interest. Equity finance is where the third party provides funds for shares or part ownership of the company as return on that financial investment.


Types of Debt Finance


Bank Loan

This loan is a sum of money borrowed with regular repayments over a chosen period of time, which will include interest and or fee's bank to the provider till the loan is paid off. F&I Partners has lenders offering large limits for eligible business customers which can be used to purchase anything direct for the business such as inventory, fit outs, assets or paying employees. Bank loans generally have longer loan periods and minimum repayments to ensure it is paid in full by the end of the term.


Invoice Finance

Invoice finance is a flexible solution for businesses who have outstanding invoices and want the money owed to them to be readily available. Normally, invoices have periods of payment up to 30 to 90 days, which means you have provided the goods or services and are not yet paid. With invoice financing lenders can offer you a percentage of the amount owing on the invoice straight away with costs incorporated, and this can be paid back once invoices are fulfilled.


Vehicle or Equipment Finance

Asset finance is used when a business has a vehicle or equipment they want to purchase and wish to not pay for it upfront. Vehicle finance is a facility whereby the loan is generally secured against the asset being financed, so their rates are slightly higher than home loan rates but more cost effective than unsecured lending


Trade Finance

Trade finance is a solution for importing and exporting business functions to free up cash flow and mitigate the risks which come with trading internationally. Using a third party to finance these transactions provides certainty the items are paid for in full once they are shipped and won't have to take on the risk of delays in transportation prolonging payment of goods. Similar to invoice financing, this type of finance bridges the cash flow gap when importing and exporting internationally.


Line of Credit

A line of credit is a revolving fund solution which can be used for emergency and everyday expenses as they arise. You can draw down up to the limit of the line of credit, and repay the amount drawn down, which fluctuates depending on the balance of credit owing at any given time.


Merchant Cash Advance

A merchant cash advance is for companies that have a significant volume of sales through customer card payments. The amount borrowable will be determined by the value of card transactions being processed. The repayment function of this loan works that every time a card transaction is processed, that percentage will go back to repay the merchant cash advance loan till the full principal and interest amount is paid off. This can assist businesses who experience a big variance in trade volume over seasons, such as retail trade businesses.


Types of Equity Finance


Crowdfunding

Crowd Funding is a common way to source funds for innovative industries or start-ups. This type of funding does not necessarily require a strong credit profile or security to the loan like the above loan types mentioned. However, you do require the attention of people willing to invest in your businesses which may require other resources to do this effectively. A risk is you may not have certainty if the required funding will be successfully raised.


Venture Capital

Venture capital is a finance solution for businesses with very high growth potential, think of the show Shark Tank. Normally with this kind of fund raising a potential investor will need to audit the businesses to gain confidence on their return of investment, which may include audits of financials and proposed business plans.


Angel Investors

Angel investing is where a business will offer shares or part ownership in the company in exchange for funding. Similarly, to venture capital, you may need to have sufficient evidence to justify the businesses potential in the market financially; to give the investor confidence they will have the sought-after ROI by becoming shareholder or part owner.



How to Choose the Right Finance for Your Business

  1. Understanding the purpose of seeking finance & what it will be used for?

  2. How much money do you need?

  3. How quickly do you need it?

  4. Can your business make the required repayments?

  5. What types of business funding are you eligible for?

If you want help to select the right finance solution for your business objectives, book a free appointment to speak with our experienced business lending specialists.





Disclaimer Statement

The information provided in my blogs is general in nature, and I always recommend you seek advice from a professional financial advisor before making any decisions about your own finances. Your full financial situation would need to be reviewed prior to acceptance of any offer or product.

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