First of all, salutes on taking the next step in your business. If you are looking to start up a business, expand your existing business, purchase new equipment for operation, or bridge a rough patch. It is an important step and the right track for the growth and wellbeing of your business.
This is the art of raising and managing your company’s funds to ensure business operations’ smooth running. There are two major types of business finance, namely;
Debt finance: these are funds borrowed from a lender to repay with interest in a fixed period. These can be short-term (running between 1 – 12 months) or long-term (running from 1 year up to 5 years). The latter is often catering to large expenses such as business startup, fixed assets, or even purchase of equipment.
Equity finance: This is capital exchanged for co-partnership or in exchange for part of your company shares. The lender here is known as a capital investor, assesses the business module, and takes a risk to finance the business. They only make money when the company is successful; otherwise, they will lose when the business fails. The advantages of choosing equity finance are that you have no pressure for repayment, the lower risk involved, and increased credibility by your investors. The main downside for this type of financing is you lose control of sole decision making.
This article will expound more on debt financing; we will look at the requirements and how you can apply for it.
In case you are interested in the process of applying for a business loan in New Zealand, but you do not know where to start, look no further; below, we are discussing the simple step by step process, especially for a startup business.
PROCESS OF GETTING
Plan early: early preparation is critical when you want to take this step; it will either spearhead your efforts or trash them.
Prepare your business plan: A business plan should be well-structured to layout your vision for your business's growth and the steps you intend to take to get there. A business plan is an essential tool for communication with your potential investors and, in our case, lenders to fund your business.
Review your credit rating: Your creditworthiness will affect the amount of loan you can get and interest rates. Ensure that your credit rating is vital to secure the best rates.
Determine how much business finance you need: From your business plan, you will establish how much money you have and how much you need to borrow to meet your target.
Research on borrowing options: Choose a lending institution that offers the best deal for your business and apply for the loan.
Sign the contract: after getting to an agreement with the lender, read your contract terms, and append your signature. In most cases, you will obtain your funds in less than five working days.
Let’s briefly look at the advantages and disadvantages of debt business financing in New Zealand.
Pros:
You retain the control of your business and especially the decision making.
The funds are easily obtainable upon need.
Interest charged is tax-deductible.
Cons:
The repayment period is fixed, which might cause pressure and financial strain, especially for startups.
Depending on the amount borrowed, you might have to use an asset as collateral, which you’d stand to lose if you cease to make the repayment as agreed.
Loan repayment starts immediately; there is no grace period; this is challenging, especially for a new business that is yet to be established.
With these highlights, you are now set to pursue your dream. Good luck with your business venture!