Small business owners often know exactly what is needed to catapult their growth – that vital piece of equipment or that pivotal new team member. Often the only limiting factor is the balance in their bank accounts.
If you’re aiming to scale your New Zealand based business, but capital is the constraint, fear not, as there are numerous avenues you may not have considered.
What Funding Methods Should Kiwi Business Owners Know About?
There’s a range of funding options available to New Zealand's small businesses. Reflecting on these questions can help you deduce the most suitable path for your business.
- Does my business demand steady cash flow to cover ongoing working capital needs?
- Is capital essential to broaden my business operations or enhance our in-house capabilities?
- Could my business leverage industry-specific expertise or targeted knowledge beyond monetary assistance?
- What are the consequences if my business fails to secure additional funding?
With your funding requirements in perspective, let's delve into diverse financing avenues, particularly focusing on non-dilutive options such as grants and incentives.
Non-dilutive Funding Alternatives
Non-dilutive financing enables your business to access growth capital without relinquishing ownership or equity. Besides traditional bank lending, the digital age has ushered in an era where fintech solutions prevail and the New Zealand government actively fosters innovation and local enterprise through grants and incentive schemes.
Grants and Incentives
New Zealand is hospitable to small businesses when it comes to grants and incentives, with offerings from both public sector agencies and private organisations. These grants typically aim to bolster certain sectors, startups, growth-stage ventures, or even specific demographics within the business community. Here’s why New Zealand grants should be on your radar as a robust non-dilutive funding source.
Advantages of Grants and Incentives:
- You secure capital without ceding any business equity.
- Grants can range significantly in value, catering to various needs.
- The Intellectual Property terms are usually favourable.
- There's typically no necessity to repay the grant funding or incur interest.
Challenges of Grants and Incentives:
- There may be stringent criteria on how you can allocate the funds.
- Applying for grants can be involved and time-intensive.
- Grants may be contestable, requiring a strategy to stand out from the crowd.
- Complying with grant conditions might demand considerable admin work.
Invoice and Debtor Financing Options
“Do invoice due dates mean nothing to people!?” It’s an age-old problem faced by many business owners. Startup founders often get a rude shock when they first get into business and learn that invoices are often not paid on time, and seemingly, whenever clients or debtors feel like it! If you’re making a lot of sales but it’s taking a long time to collect payment, then invoice and debtor financing could be right for you. Invoice finance for small business allows you to sell your receivables to a financial institution at a discount and you receive money when the facility is approved.
Benefits of Invoice and Debtor Finance:
- Invoice financing frees up cash flow and gets you money needed for working capital.
- It also transfers the administration of chasing debtors to the facility provider.
Drawbacks of Invoice and Debtor Finance:
- Fees are involved and can be expensive.
- Financial institutions may have strict criteria for the receivables they’re willing to purchase.
Funding That Requires Equity Dilution
You might not like the idea of giving away slices of your equity in your business, but there are benefits to this type of startup and small business funding. It could also be the only option to secure enough funding to get where you want to be.
Crowdfunding
New Zealand's crowdsourced funding (CSF) landscape offers startups a dynamic avenue to raise equity, connecting them directly with retail investors via FMA-regulated online platforms . These portals enable startups to pitch to a wide audience, gaining capital along with market validation. However, while CSF imposes fewer barriers than traditional financing, it demands effective campaign marketing and adherence to regulatory standards to unlock its full potential.
Benefits of Crowd-sourced Funding:
- Crowd-sourced funding means you can bypass the venture capital firms.
- CSF platforms help you get noticed in the market by running campaigns.
Drawbacks of Crowd-sourced Funding:
- Existing shareholders equity will be diluted.
Angel Investment, Venture Capital and Private Equity
The venture capital scene, although smaller relative to global markets, is vibrant with several VC firms actively seeking to invest in innovative ventures with scalable potential. Kiwi startups in technology, biotech, agri-tech, and other sectors find VC funding essential for significant growth phases.
Angel investors in New Zealand, often successful entrepreneurs or business professionals, provide not just capital but also valuable mentorship and networking opportunities to startups.
Although the technical definitions of these entities are different, the common theme is that they are groups of people and organisations that in exchange for their money, influence and business expertise will take a stake in your business. While you might feel like you're swimming with the sharks, finding the right sophisticated investor could transform your business as they become a partner and valuable contributor.
Benefits of VC, Angels and PE:
- Funding can be substantial and turbocharge the growth of your business.
- Generally these organisations have access to operational experts that can get involved in your growth strategy and make a significant impact.
Drawbacks of VC, Angels and PE:
- Funds may come with strict conditions on how the business is run and who holds key decision making positions.
- Investors may ask for significant equity in exchange for funds and you might not have much leverage in negotiations.
Source Equity-Free Funding Strategies for Your Business
Navigating the grants and incentives landscape can be daunting, which is where expert consultants come in. Our dedicated New Zealand team specialises in assisting NZ-based small and medium businesses to track down and take full advantage of these opportunities, while handling the intricate waters of eligibility and compliance.
For an in-depth discussion on the most effective way to infuse your Kiwi startup or small business with capital for growth, consider a session with our grant consultants knowledgeable in New Zealand's unique funding landscape.
