Australia’s alternative lending options
Article written by Fundsquire
Alternative lending refers to non-traditional forms of funding, instead of the usual bank loan
methods to secure an injection of cash.
There are so many options when it comes to business finance in Australia. Generally these can
be split into two categories: non-dilutive and dilutive funding. Non-dilutive refers to investments
that do not require founders and owners to exchange a portion of their company. Alternatively,
dilutive funding does require a percentage of equity to be exchanged in order to fulfil the
investment raise. Here are some examples of alternative lending in Australia:
Asset finance
Asset finance refers to the agreement of financial loan by securing the current company assets
as collateral. Typically, these assets are integral pieces of equipment or resources that the
business wouldn't survive without.
Generally speaking, asset finance is well-suited towards businesses that have a poor credit
history, a short credit history, or would struggle to raise funding elsewhere. Since equipment is a
physical investment with a long lifespan, it's a more 'secure' version of business funding. This
means that businesses who choose this form of finance will often benefit from more flexibility in
their loan terms.
Equipment finance
Equipment finance is a form of alternative funding that benefits the small business in two ways
at once;
● by providing the equipment required to develop and grow the business
● by creating a finance plan to repay the cost of the high-value equipment in conjunction
for the reception of profits
Equipment finance works through the start-up leasing a piece of machinery for an agreed period
from alternative lenders, usually between 1 and 7 years. Loan instalments are repaid over the
course of the lending period and interest is added at a lower rate compared to traditional banks.
Examples of companies that offer equipment finance in Australia are Stratton Finance and
Property finance
Property developers can raise finance through many funding alternatives to mortgages,
including:
● bridging loans
● ground-up loans
● refurbishment loans
These types of business loans are short-term loans and the investment plus interest repaid
once sold. Alternative lenders who specialise in investing in property in Australia may acquire
your property if you fail to repay the loan.
Non-Bank Lenders
Non-bank lenders are financial institutions that typically don’t have a banking license, but are
still able to loan money to borrowers. Non-bank lenders usually have more options available for
businesses and may be able to offer loans over a longer period. They’re also less restrictive and
are more flexible when it comes to businesses with a shorter track record.
Most non-bank lenders can be accessed and applied to online. Some examples of non-bank
alternative lenders in Australia include Prospa and Judo Bank.
Peer-to-Peer (P2P) Loans
P2P loans originate from P2P lending platforms that arrange loans between investors and
borrowers. P2P loans are great for businesses and entrepreneurs who want easy and quick
access to a loan without having to visit a bank or build an extensive track record. In Australia,
one of the most well known business P2P lending companies is ThinCats.
Business grants
Many governments, agencies and non-profit organisations offer grants towards businesses that
have distinct purposes or goals. With a simple application, small business owners can get
access to development funding that is not required to be repaid, and have no interest rates.
Here are some of the top startup grants available in Australia. Eligible businesses may need to
qualify for grants through certain business structures or goals, and grants are usually through
matched-funding means alongside other forms of investment.
Research and Development Funding
The premier example of R&D funding in Australia is the tax credit loan. Companies working in
innovative fields can benefit from an advance of the calculated refund that they would receive at
the end of the tax year for expenses relating to development. R&D funding works by advancing
the refund your company is already due to receive. The Australian government allows eligible
companies to claim back expenses relating to salaries, subcontractors and other development
costs (to an uncapped amount).
Wrap up
For every type of alternative lending out there, you'll find a huge number of alternative finance
providers and financial institutions. The trick is to find the agency or business lending option
which best suits your individual circumstance. For example, at Fundsquire, we specialised in
Growth Finance through the R&D Tax Credit funding, Grant Advance funding and
revenue-based financing opportunities.
Get in touch with Fundsquire to find out the right non-dilutive funding for your business.