Due to rising costs and interest rates, as well as an increase in late payments, some Australian businesses may be facing dwindling cash reserves. And with almost one-quarter of small and medium-sized enterprises facing difficulties securing finance from major banks, many are looking at alternative solutions to traditional bank loans in order to raise capital.

In addition to this, ScotPac’s recently released SME Growth Index reveals that 90% of Australian businesses are willing to consider using a non-bank lender, continuing the growing trend towards multi-banking.

If you find yourself without a financial safety net, searching for an alternative solution to a bank loan, or are simply looking to improve your business’s cash flow, there are a few alternative avenues you can take to raise capital.

Refinancing equipment and assets

While the family home is often one of the biggest assets a small business owner has, there are Asset Finance solutions that provide the same financial security without impacting your family’s long-term stability.

Being the process by looking at the assets your business has, this could include property, equipment and machinery. These assets can be leveraged to secure loans or to refinance existing ones, thereby providing the necessary funds for your business without putting your home at risk.

By refinancing, you might secure a lower interest rate, better terms, and pay reduced costs and fees. This approach allows you to consolidate debts and manage your cash flow more effectively, all while maintaining the stability of your personal assets.

You may also be able to consolidate your other debts with higher interest rates – such as business, credit card or personal loans – into your new loan. And remember, interest paid on Business Loans is typically tax-deductible, making it an attractive choice.

Accounts receivable as an asset

Many business owners don’t realise that their balance sheet is potentially their biggest financial asset, this is known as Invoice Finance, invoice factoring or debtor finance. It is a line of credit that helps to turn outstanding invoices into a source of readily available funding. You can access an immediate cash injection to cover new opportunities, or costs such as wages and suppliers with no property security required.

If you have future contracts and regular repeat business but find yourself short on funds due to late payments or cash flow issues, Invoice Finance could be the solution to securing more working capital. Non-bank lenders can offer better rates for businesses and faster approvals for invoice finance, due to their agility, diverse funding sources and commercial acumen.

Business Loans

A Business Loan is the logical first step for many enterprises. Business Loans are financial tools designed to provide capital for companies to start, operate or expand. Loans can be secured or unsecured with terms varying based on the lender and your business’s financial health. Benefits include access to larger sums of money than personal loans, enabling business growth, purchasing equipment, hiring staff, or managing cash flow. Additionally, Business Loans often offer lower interest rates compared to credit cards, making them a cost-effective option for financing.

Crowd-sourced funding

Crowd-sourced funding (CSF), a relatively new form of fundraising in Australia, helps your business raise money without traditional debt. It entails attracting many investors, usually via an online platform, who contribute relatively small amounts in exchange for shares in your company.

The CSF regime, introduced in 2017, maintains appropriate investor protection measures for this type of fundraising, such as ensuring CSF services are licensed.

CSF allows you to tap into a wider pool of potential investors, raise awareness of your products in the market and get feedback on what you are doing. But campaigning to get backers and completing the paperwork may be time-consuming.

Angel investors

These individuals provide financial backing for early-stage startups or entrepreneurs, typically in exchange for equity. They may also offer mentorship and be more patient in tough times. They are often wealthy and may be successful business owners or recent retirees.

However, finding the right angel investor who aligns with your business can be challenging. You may have to do much networking and pitching, although some websites can help with introductions.

Venture capital funds

Venture capital funds are specialised investors, often run by large groups or superfunds, that provide financing to businesses with high-growth potential. They offer significant capital injections in exchange for equity, aiding in scaling operations, research and market expansion. Benefits include expertise and networking opportunities from experienced investors. However, pitfalls include loss of control as investors often seek influence over strategic decisions. Additionally, rigorous due diligence and the lengthy funding process can be daunting. Successful partnerships often hinge on aligned goals and clear communication, ensuring all parties benefit from the venture’s growth while mitigating risks associated with market volatility and business challenges.

Friends and family

Global research has found that nearly half of small businesses access funding from family and friends, especially in times of crisis. These loans often come with low interest rates and flexible repayment schedules, and without the need to do time-consuming paperwork. However, we know that mixing business and personal relationships can lead to trouble. The advice is to treat these loans in the same way you would treat any other business relationship and always sign a water-tight loan agreement.

Which method is right for you?

Good cash flow is essential to business stability and growth. If traditional avenues for funding aren’t available, business owners need to get creative and seek out other working capital solutions. The most important thing is to thoroughly research your options and find the right solution for your business, whether it’s refinancing an existing loan, speaking to a non-bank lender, crowd-sourced funding, or another alternative.

ScotPac – Supporting small businesses for over 35 years

ScotPac has been helping small businesses find working capital solutions with fast and flexible funding for decades. With more than 8000 businesses currently supported across Australia, competitive rates and customisable, industry-leading financial products, our lending specialists have the expertise to help you raise capital and improve your company’s cash flow.

To find out more about our working capital solutions or to discuss your goals for your business, get in touch with your local ScotPac office today.