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Creative Funding and Financing Options for Buying a Business in New Zealand
Raising capital to purchase a New Zealand business isn't always an easy task, though entrepreneurs who are willing to think creatively do have numerous options. The obvious options are lender financing through a bank or other top-tier credit organisations. The benefits of going this route include stability and loans that are protected under laws and regulations. The disadvantage is that banks have to follow those same regulations when they approve loans. Personal credit woes, a slight disadvantage in the market or debatable longevity for the business in question could all mean you get turned down.
If you can't get traditional funding or financing for your business venture, here are a few other places you might turn.
Online lenders of all types are making waves in the financing industry; that's known as a disruptive service. Disruptive services aren't necessarily a bad thing, they simply seek to change the way things have always worked. Online lending companies often set themselves up to operate outside of the regulations that tether banks, though they do have to comply with some lending laws. The result is that an online lender specialising in assisting entrepreneurs can often provide funds even when the business opportunity doesn't tick all the marks on a banking application.
Pros: increased access to financing for entrepreneurs at all levels.
Cons: you must conduct in-depth due diligence to avoid scams, and you might still end up with a high-interest loan. Tread carefully.
Crowd funding involves asking a crowd of people, often online, to put up funds for your business. Why would people do this? In rare cases, if you can craft an entertaining narrative or that the business is good for some type of cause; they'll do it out of the goodness of their heart or simply because they like you. Most of the time, you have to offer something in return. You might offer return on their investment with slight interest, promise free products or services or agree to place their name in business publications or in prominent locations at the business site.
Pros: fewer legal and financial rules mean fewer obstacles; what you raise, you raise.
Cons: you really do need a unique story or the ability to compensate funders in some way to draw a big enough crowd.
Angel investors are individuals with extra cash who are looking to make a return outside of typical market opportunities. Often, they are fully vested in stocks, bonds and other options and they want to diversify. They might also be former entrepreneurs themselves looking to give back. To score an angel investor, you need a good business opportunity and a winning proposal. These types of investors rarely put money in something they can't personally get behind.
Pros: if you can connect with the right people, it's faster than other forms of funding.
Cons: you owe your investor answers and reports and that means you can't always operate your business on personal whims.
Your Own Pocket
Finally, you can fund your business purchase by leveraging your own equity or raiding personal savings.
Pros: if you have the capital or resources to do so, this is obviously the fastest way to buy a business.
Cons: it's also one of the riskiest. If the business fails, you could be left with nothing. Even if the business ultimately succeeds, stripping yourself of all cash reserves can make for some pretty lean first years.
Funding a New Zealand business purchase is not a light consideration. Take time to think through all the factors before you move forward with any type of funding agreement.
For further information about this article, contact your nearest LINK Business Broking office at: