Steve Torso

Steve Torso

Monday, 23 July 2012 15:35

Getting funding without home equity, from the major Australian banks, for a start-up with product orders: Start-up Mentor Advice By Steve Torso

Can I get funding from the banks if I have customers, but no equity?

I have confirmed sales orders for my new business, but need funding to get it up off the ground. Given that I have no real equity in my house, is it even worth approaching the banks?


These days it is quite difficult for you as a start-up SME to receive a business loan from the bank with no equity.


There are a couple of situations our clients have come across recently, which may be useful in answering your question.


Here are a couple of key areas to look at:


1) The size of your order


The size of your order will determine the type of funding which is suitable. For lower amounts, many entrepreneurs have launched their businesses off the back of credit cards or personal loans, as business loans would have been unavailable to them.


As you move into larger amounts above $100,000, you may find that attracting private investment is a viable option. A client of ours recently raised just under $500,000 from people already known to the company, to fund their existing orders.


2) The buyer(s)


If your buyers are random individuals and one-off orders it is a lot less appealing than a signed agreement with a blue chip or well-established client.


In another transaction by one of our clients, they were able to get trade finance from one of the big four banks for $3 million after meeting at one of our events. The buyer of the products was a Chinese SOE (state owned enterprise) which the bank had a previous relationship with.


If you are selling to random individual or smaller companies with limited recurring orders, it places you in a more difficult position to negotiate.


3) The profit potential


In realising that banks may not be the most suitable option, then your main option is to create an opportunity which can be attractive to potential investors.


If the opportunity is immediate, then you need to realise that the most likely source of investment will be from people you know already. They are referred to as Friends, Family and Fans.


You need to be very clear about what the opportunity is and the margin in the products you are selling. Whilst they are investing because they like, trust and respect you, ultimately they will want to see a return on their money.


4) Deal structuring


Whether your opportunity is a one-off or a business which you will look to expand upon over the next few years, the structuring of your deal is important.


If it is a one-off opportunity, then your deal structuring needs to provide a fair and reasonable return to the investor given the risk which investing represents.


If this is an opportunity which you believe you can develop into a significant business then seek out mentors and advisors to steer you on the right path.


There are many challenges, problems, issues and opportunities, which face a growth business. The people around you that can guide you will be infinitely valuable.

Steve Torso is the Managing Director of Wholesale Investor which is Australia's largest private investment platform, which has showcased over $500m in private opportunities. Through a high quality magazine, CEO Interviews, live investor events and online distribution, Wholesale Investor provides investors with direct access to companies seeking to raise capital.

Comments (1)

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Debtor finance is another possible option for start-ups that have confirmed sales orders from well-established debtors / customers.

Debtor finance is a type of cash advance that is secured by the value of your debtors’ ledger, rather than being secured by property assets which may not have sufficient equity for your borrowing needs.

It works only for businesses that sell goods or services to other businesses on credit terms, eg, 14 days, 30 days etc.

As it provides scalable funding for businesses, growing as sales grow, it is a good solution for fast-growing start-ups.

A number of Australian banks provide debtor finance. There are also independent providers and bank-backed specialists, eg, Oxford Funding which is a subsidiary of Bendigo and Adelaide Bank.
Rob Lamers , July 25, 2012
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