If finance/investment is required for any project or even for other business opportunities be careful considering the type as it could affect your tax obligations and cash flow.
The information below is supplied by the Small Business Development Corporation, for further information you can visit their website.
Before sourcing finance:
- Determine how much finance/investment will needed
- Develop a sound business or project plan (this may need to comply with government or institute standards)
- Consider the timeframe you will need to repay the loan or the equity you are prepared to release
- Determine your ability to repay the loan or work with the investor
TIP: Seek professional advice from your accountant or business adviser to help you make sound financial decisions. Collaboration HQ can assist in connecting you to an adviser if needed.
Two of the main types of finance include:
Debt finance – money borrowed from external lenders, such as a bank
Equity finance – investing your own money, or funds from other stakeholders, in exchange for partial ownership.
- You retain full control of your business.
- The interest on the loan is tax deductable. • The loan can be short or long term.
- Less risky than a loan as the investment does not need to be paid back immediately.
- You’ll have more cash on hand as profits do not have to be used to repay loan.
- The investor(s) can provide additional credibility and skill sets to your business.
- The loan must be paid back within a fixed time period.
- Loan repayments will commence shortly after the loan is approved.
- The loan is often secured against collateral which may include assets
of the business or the owner’s property.
- It can be difficult to grow the business because of the cash drain of repaying the loan.
- The investor(s) will want some ownership or controlling interest of your business and will have a say in business decisions.
- It takes time and effort to find the right investor for your business.
TIP: You are recommended to review the relationship with your lender on an annual basis to ensure that you are getting the best finance terms