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Alternative ways to fund your business

Alternative ways to fund your business article image

Missed out on a grant? Here’s how to find alternative funds using information from your grant application. Grants are a great way to boost your business funds for a particular area of your business, whether it's research and development, innovation or marketing. Funding bodies tend to be not-for-profit agencies, most commonly local, state or federal governments, but also research institutions such as universities, and foundations where your business' products or services meet their agenda. While attaining a grant is not necessarily a hard task, far more businesses apply for grants than there are funds available, so receiving money from a grant is not guaranteed. In many cases you may also have to meet strict criteria that could affect the way you do business, or the funding body may have a different agenda to your business' aims. The grant application process can be quite intensive and involve identifying and sharing a lot of company information. If you're finding it difficult to throw away all the effort you put into the application, here are some ways to leverage the information you now already have at hand, and maybe obtain the money some other way.

A win-win situation

It may sound implausible to win a prize when your grant application has just been rejected, but if you already have all the information readily available, it's worth a shot. Often competitions are looking for entries that are a little bit different, whereas the grant process may seem a bit more conformist. Prize money can go up to several thousand dollars, such as the recent $30,000 that RMIT University awarded as part of its 2009 Business Plan Competition earlier this year, or valuable equivalents; last year, for example, the Australian Small Scale Offerings Board held a pitch competition where the winning business received a $40,000 listing. Non-monetary prizes could include business services or office equipment that could assist you. The Telstra Business Awards, for example, have a $400,000 prize pool that is made up of a mixture of cash and Telstra products and services. While you're at it, don't forget that there are a number of awards that may not have monetary prizes, such as the Australian Export Awards, but are nonetheless valuable from a marketing perspective and could enhance your chances of receiving grant money or other prizes in the future. If you already have the information at hand, why not?

Working capital harder

If you're looking for extra money because you need more working capital-as opposed to being a start-up entity at the commercialisation stage-investigate other ways where you can free up funds. Securing a steady stream of cash flow is vital for most exporters, though you wouldn't be alone if you found this difficult to do. Use the information you gathered for the grant application process to make cash flow projections based on your current sales and identify areas where you'll be investing the money, then see whether you may be able to cover this area by extending your current working capital. Invoice finance is one way to ensure your sales equate to money flowing through the business. Invoice finance, which includes factoring and invoice discounting, allows you to take your sales receipts to a financial institution that will, for a fee, give you a percentage of the proceeds upfront, usually between 80-90 percent, and the rest upon settlement of the invoice. This means you can use the money before it actually falls due from your buyer, which could be some 90 days after the sale. Factoring is invoice finance where the financial institution also manages your sales ledger, which means they will chase late payment on your behalf if necessary. It will typically be more expensive than invoice discounting, which is invoice finance without this type of management. Another thing you can do is extend your existing credit lines with your financier. If you've been a good client, most institutions would be happy to accept the business case you initially built for your grant application as a basis for requiring more capital. Reached the limit of your credit? You may be able to secure more money via a guarantee such as through the Export Finance and Insurance Corporation (EFIC). EFIC's Headway program has been designed specifically for small to medium businesses that seek an extension to their current finance facilities but do not have additional security to offer.

Investor ready

For businesses after a grant to fund serious growth, capital raising may be the alternative answer. Not to be taken lightly, capital raising usually involves an investor backing your venture in exchange for part ownership in the business and a hand in the business' medium term future in an executive role. "The advantage of equity is that investors behave more like partners in the business, they bring more to the table than just the capital: they have background knowledge in the industry, capabilities, contacts, sometimes marketing knowledge," says Candida Costa, consultant with BSI Capital. While investors will require a fair amount of reporting-forecasts, cash flow projections, profit and loss statements and an evaluation of the business-the good news is that you would already have this on hand from your grant application. The downside of capital raising is that the investor has most of the power and will often have conditions attached to the money they give, which may include setting business key performance indicators and obtaining a significant share of the business. If you're not comfortable with this, capital raising may not be for you. Costa says businesses must do their homework and know what to expect in this process. "If you need the capital you have to accept the terms that are being proposed, but you can't just accept without knowing what it implies," she notes. "Their view on the business will influence how the business goes. Your interests have to be well aligned for it to work. Sometimes it's better to take longer to grow organically than accept something that won't be beneficial for the company." The benefits, however, are an injection of money and expertise into the business for a temporary period, usually less than five years. You may also be able to tap into funds from other countries, depending on your plans for the money. If you're setting up operations in another country, for example, you may be able to attract funding for that arm of the business, says Costa. "I work with funds based in Brazil and VC [venture capital] funds will normally invest in local businesses. So if you want to go to Brazil and set up operations there, you might be able to raise funds with a local VC firm. Knowing the available sources of funding in that market can increase the chances of success in raising capital." So now you know what to do with that redundant grant application. Don't waste the information you've gleaned about your business, put it to good use and find funds another way.

Investment advice

Know thyself. Understand your working capital requirements before you go into export. Before you start exporting you have so many costs and understanding what those costs are, and how big the exercise will be, will allow you to take advantage of the market you've developed. The worst thing is spending money to get to a point and then you don't have working capital to fund the actual sales. Ask the professionals. The big four accounting firms are a good reference because they're present in almost every country. Some law firms also have international networks and can assist you in each country. International banks like HSBC could be good, too. Understand the conditions. The term sheet is where you establish the terms of the investment. It's very important to seek professional advice on what those terms are and have a good understanding of those. Most terms sheets have certain KPIs and if they're not achieved, it will also have clawback clauses or clauses around equity based on future outcomes. The investor can end up with more than 50 percent of the company. -Candida Costa, consultant with BSI Capital (www.bsi.com.au)

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