Whether you’re purchasing a business or you’re selling one, you may need to raise finance. There are a number of ways in which you can raise finance, depending on the nature of your business and the type of commercial transaction that you’re entering into.
When you borrow money from a lender, it is often referred to as ‘debt financing’ and may take a variety of forms including:
- Trade credits;
- A commercial bill;
- Invoice financing;
- Hire purchasing; or
- Getting lines of credit from a bank or another financial institution.
In Australia, most debt is financed by banks. If you’re interested in borrowing money from the bank or any other lender, there are certain things that you will need to keep in mind. These include:
- What the interest rate be for the repayments will be
- How long the financing agreement will run for
- Any specific terms within the financing agreement that you will need to be wary of
- If there is a specific requirement to provide certain documents to the lender
- How exposed the lender may be to other lenders
Is debt financing right for me?
As mentioned earlier, the decision to borrow money from a lender is really dependent on your business needs and the type of transaction that you are entering into. Generally, the lender will not have a say in how your business is run if you decide to proceed with debt financing. This will allow you to continue exercising authority over your business without interference from the lender. Also, once you have fulfilled all your repayment obligations under the loan agreement, the financing agreement between yourself and the lender will be over. This means that once you have repaid your loan, you will not have any further obligations to the lender. Additionally, since you can enter into repayment options that are fixed it will be easy for you to anticipate your business expenditures. You can budget more accurately and make allowances for repayments with assurances that your repayment rates will not change.
However if you are not able to make your repayments on time there may be serious repercussions which are sure to affect your business.
Getting funding for commercial transactions is an important process. You need to make sure that your repayment options are not so oppressive that your ability to enter into transactions is hindered. You need to also make sure that you enter into a form of financing that you thoroughly understand and that you will be able to fulfil your repayment obligations under. It may be a good idea to do some extra research, speak with some financial institutions and get some legal advice so that you are aware of all of your options before entering into a financing arrangement.