At KEVOS, we understand that raising funds is one of the biggest hurdles you’ll face, whether you’re launching a new venture, scaling up, or exploring new opportunities. Deciding between financing options can make all the difference for your business growth. Here’s a breakdown of the main funding paths to help you choose the best one to support your goals.

Debt Financing: Borrowing Capital to Grow

Debt financing means taking out loans you’ll repay with interest over a set period. Here are some common sources in Australia:

• Banks like Commonwealth Bank, ANZ, and Westpac

• Non-Banking Financial Companies (NBFCs) such as Latitude Financial and FlexiGroup

Example: Let’s say you secure a loan of AUD 200,000 from Westpac at a 5% interest rate, repayable over five years. You retain full ownership of your business but must keep up with loan repayments, regardless of profits. This option works well for businesses with predictable cash flow.

Pros: You maintain ownership and control over your business.

Cons: Debt repayments can put pressure on cash flow, especially during lean periods.

Equity Financing: Attracting Investors

Equity financing involves selling a share of your business to investors, such as:

• Private investors or venture capitalists

• High-net-worth individuals (HNIs)

• Investment firms like Airtree Ventures and Blackbird Ventures

• Public Offerings (IPOs) for large-scale ventures

Example: If you need AUD 500,000 to kickstart a project, you might offer 20% of your business to an investor. There’s no need to repay them with interest, but you’ll share profits and decision-making power. This option suits high-growth businesses needing significant capital to scale.

Pros: No repayment pressure, making it ideal for startups with high growth potential.

Cons: Investors own part of the business and can influence decisions.

Debt vs. Equity: Key Considerations

To help you decide, here’s a side-by-side look at both options with practical examples.

1. Cash Flow Probability

• Debt: Works best if your cash flow is steady. A retail business making AUD 50,000 per month can cover loan repayments without strain.

• Equity: Ideal for companies with delayed revenue growth, such as a tech startup with no revenue for its first year.

2. Profitability

• Debt: Suitable for businesses with high profit margins. A construction company with AUD 1 million in annual profits, for instance, can manage debt repayments more easily.

• Equity: Better for lower-margin or volatile businesses, such as a café, where an investor shares in the risk without immediate repayment pressure.

3. Cost of Funds

• Debt: Generally cheaper, as you only pay interest—like a 5% rate on a bank loan.

• Equity: Often pricier, since you’re trading a percentage of future profits. For example, raising AUD 1 million through equity might cost you 25% of your business.

4. Collateral

• Debt: Typically requires collateral, such as property. If you take a AUD 300,000 loan, a bank might need a factory valued at AUD 500,000 as security.

• Equity: Doesn’t require collateral. Investors could invest AUD 250,000 based solely on your business plan.

5. Investor Risk

• Debt: Lenders have lower risk since they can seize collateral if you default.

• Equity: Investors take on higher risk, with no collateral, betting on the business’s success.

6. Ownership

• Debt: Allows you to keep full ownership. A small tech company could borrow AUD 50,000 and repay over time, retaining 100% ownership.

• Equity: Investors own a portion of the business, such as a 20% stake for AUD 500,000, giving them influence in decisions.

7. Returns

• Debt: Fixed returns for lenders, typically in the form of interest payments.

• Equity: Variable returns based on business growth, with investors sharing in profits.

8. Upside Potential

• Debt: Limited for lenders—banks only receive interest.

• Equity: Investors share in growth. If your business value rises, their equity appreciates as well.

9. Growth Capital

• Debt: Can limit reinvestment capacity, as you must focus on repayments.

• Equity: Provides more flexibility to reinvest for growth without repayment obligations.

10. Capital-Raising Capacity

• Debt: Limited by repayment ability. A business earning AUD 150,000 annually might only secure a AUD 75,000 loan.

• Equity: Allows multiple rounds of funding if your business shows potential.

Customer-Based Funding: An Alternative Option

Another approach is to raise funds directly from customers, through pre-orders or early sales. For example, by offering AUD 500 pre-bookings for a new product, you can raise AUD 100,000 from 200 customers. This method generates capital without loans or giving up equity, and you can put this cash flow back into the business immediately.

Ready to Fund Your Future? KEVOS Can Help

Choosing the right funding option depends on your business’s needs, cash flow, and growth ambitions. At KEVOS, we’re here to support you in selecting the best strategy to fuel your vision. Whether you’re leaning toward debt, equity, or customer-driven funding, we’ll provide you with expert advice and a design drafting service tailored to your unique project. Reach out to KEVOS today and let’s explore how we can power your journey!