What Is Business Finance? A Guide for Australian Businesses

Business finance is the money a business uses to start, operate, manage cash flow and invest in future growth. It can come from the business itself, investors or external finance providers such as banks and business lenders.

For Australian small and medium-sized businesses, access to finance can be particularly important when there is a gap between the money available today and what the business needs to achieve its next goal.

That might mean purchasing equipment, increasing stock, hiring employees, opening another location or managing a temporary cash-flow gap. In this guide, we explain what business finance is, the main finance options for a business and how funding can support sustainable growth.

Important: This article is general information only, not financial or legal advice. Finance costs, eligibility criteria, fees and repayment obligations vary between providers. Review the relevant contract and consider independent advice before making a decision.

What is business finance?

Business finance refers to the funds a business uses to pay for its activities and achieve its commercial objectives.

At its simplest, businesses need money coming in to cover money going out. But the timing of those two things does not always align. A business may need to purchase $30,000 worth of stock today, for example, even though it expects to generate revenue from selling that stock over the next several months.

Business finance can help bridge that gap. It may be used for:

• Working capital and everyday operating costs.
• Purchasing inventory or stock.
• Buying vehicles, machinery or equipment.
• Marketing and customer acquisition.
• Hiring and training employees.
• Renovations or new premises.
• Managing seasonal cash flow.
• Expanding into new locations or markets.
• Funding a new project or business opportunity.

The appropriate type of finance depends on why the money is needed, how much is required and the financial position of the business. Businesses dealing with a short-term gap may wish to explore cash-flow funding options, while a longer-term asset purchase may be better matched to business equipment finance.

How does business finance work?

Business finance generally involves obtaining capital either internally or from an external source.

Internal finance comes from within the business. This might include retained profits or money contributed by the owners.

External finance comes from outside the business. Examples include business loans, lines of credit, equipment finance, invoice finance and investor capital.

When borrowing from a business financier or lender, the business typically receives access to an agreed amount of funding and repays it according to the terms of the finance agreement. The lender may assess factors such as the business's revenue, trading history, cash flow, existing financial commitments and overall ability to manage repayments.

The exact assessment process and eligibility requirements vary between finance providers. Before applying, review the likely business loan requirements and prepare accurate information about your business and its funding purpose.

What are the main finance options for a business?

There is no single funding product that is suitable for every Australian business. Understanding the main finance options can help owners identify which structure is more appropriate for what they are trying to achieve.

1. Business loans

A business loan provides a business with an agreed amount of capital that is repaid over time. Business loans may be secured or unsecured.

A secured business loan normally requires an asset to support the borrowing, while an unsecured business loan may allow a business to obtain funding without providing property or another major asset as security. Business loans can be used for a broad range of commercial purposes, including working capital, stock purchases and expansion.

Businesses considering funding without property or major asset security can review unsecured business loans to understand the current product information and application path.

2. Business lines of credit

A business line of credit gives a business access to funds up to an approved limit. Instead of receiving the entire amount upfront, the business can generally draw funds when required.

This can make a line of credit useful for businesses dealing with fluctuating working capital requirements or unexpected expenses. The business should still understand the interest, fees, limit, repayment terms and what happens if the facility is not repaid as agreed.

3. Equipment finance

Equipment finance is specifically designed to help businesses acquire assets such as machinery, vehicles, technology or specialist equipment.

Rather than using a significant amount of existing cash to purchase an asset outright, the cost can be financed over an agreed period. The terms, security structure and ownership arrangements depend on the product and provider.

4. Invoice finance

Businesses sometimes have significant amounts of money tied up in unpaid customer invoices. Invoice finance can allow eligible businesses to access some of that money before their customers actually pay the invoices.

This may help businesses that generate sufficient sales but experience cash-flow pressure because of long customer payment terms. Businesses should compare the advance rate, fees, recourse arrangements and effect on customer relationships before proceeding.

5. Equity finance

Not all business finance involves borrowing. Equity finance involves raising capital from investors in exchange for an ownership interest in the business.

The business generally does not repay the investment like a traditional loan, but existing owners give up part of their ownership and potentially some control over the company. Equity finance may be more relevant to businesses with a scalable growth plan and an investor-ready structure.

6. Business credit cards

Business credit cards can provide convenient access to short-term credit for smaller everyday expenses. They may be useful for managing purchases and expenses, although businesses should consider interest rates, fees and repayment requirements before relying heavily on revolving credit.

How can business finance support growth?

One of the most important reasons businesses seek funding is expansion. Business growth finance allows a company to invest before it has accumulated enough cash to fund an opportunity entirely from existing reserves.

Imagine an Australian business receives an opportunity to fulfil a significantly larger customer order. Completing the order could generate additional revenue, but the business first needs to purchase additional stock and pay employees. Waiting several months to accumulate the required cash could mean losing the opportunity. External finance could provide the capital required to pursue it sooner.

This relationship between business finance and growth is important: finance does not create a successful business by itself. Instead, it can provide the resources required to execute an opportunity the business has already identified.

What can business growth financing be used for?

Business growth financing can be used in different ways depending on the company's strategy. For example, a business might use funding to:

• Increase inventory. A retailer or wholesaler may need to purchase additional stock ahead of a busy period or to fulfil larger orders.
• Hire additional employees. Growing businesses often need staff before the additional revenue generated by those employees arrives.
• Purchase equipment. New machinery, vehicles or technology may allow the business to increase capacity or improve efficiency.
• Open another location. Expansion can involve deposits, fit-outs, equipment, inventory and staffing costs before the new location begins generating revenue.
• Invest in marketing. Businesses may use finance to increase customer acquisition through advertising, digital marketing or sales activities.
• Launch a new product or service. Developing and launching something new can require upfront investment in research, stock, equipment and promotion.

In each case, the objective of financing business growth should be to support an investment that the business reasonably expects will strengthen its future position.

Business finance vs using your own cash

Using existing business cash has one obvious advantage: there is no borrowing to repay.

However, using all available cash to fund growth can also reduce the financial buffer available for everyday operations. For example, a business with $100,000 available might technically be able to spend $80,000 on new equipment. Doing so, however, would leave only $20,000 available for wages, suppliers and unexpected expenses.

External finance may allow the business to spread the cost while preserving some working capital. That does not automatically make borrowing the better option. Businesses need to consider whether the expected benefit of the investment justifies the cost and repayment obligations associated with finance.

What does a business financier look for?

A business financier typically wants to understand whether a business can reasonably manage the proposed finance. Assessment criteria vary between providers, but common considerations can include:

• How long the business has been trading.
• Annual or monthly revenue.
• Recent business bank transactions.
• Existing loans and financial commitments.
• Cash flow.
• Credit history.
• The amount of finance requested.
• The intended purpose of the funding.

Some finance providers may place greater emphasis on recent business performance, while others may have stricter requirements around credit history, security or trading history. This is one reason businesses should compare more than the headline amount available when considering finance.

How much business finance should you consider?

The appropriate amount depends on the purpose of the funding and the business's capacity to repay it. Borrowing the maximum amount available is not necessarily the best approach.

Start with the actual commercial requirements. If a project requires $40,000, for example, consider why that amount is required, what return the investment is expected to produce and how repayments would affect normal cash flow.

The business loan calculator can help you model a repayment scenario, but an estimate is not a quote or approval. A useful question is:

Will the expected benefit of this finance justify its total cost without putting unnecessary pressure on the business?

Business owners should also consider what would happen if revenue were lower than expected. Maintaining some financial headroom can be important when circumstances change.

How do you choose the right business finance option?

Choosing business finance should start with the problem the business is trying to solve rather than the product being advertised. Consider:

• Purpose: What exactly will the funding pay for?
• Amount: How much does the business require?
• Timing: Is the funding required immediately, or is the investment planned several months ahead?
• Repayment capacity: What level of repayment can cash flow comfortably support?
• Term: Is the requirement temporary, or is the business financing a longer-term investment?
• Security: Is the business willing and able to provide assets as security?
• Total cost: What will the finance cost after interest, fees and other charges are considered?

Comparing these factors can help narrow down the most appropriate funding structure. The business loan comparison guide can also help when assessing repayment structures, costs and lender differences.

When can financing business growth make sense?

Borrowing to grow can make sense when there is a reasonably clear commercial opportunity behind the decision. For example, funding may allow a business to purchase equipment that increases production capacity or acquire inventory required to fulfil confirmed customer demand.

The important distinction is between borrowing simply because funding is available and borrowing because the capital has a defined purpose. Before using finance for expansion, businesses should understand what success looks like, how the investment is expected to generate value and how repayments will be managed if growth takes longer than anticipated.

Business finance with SimplyFunded Australia

SimplyFunded Australia provides business funding designed for Australian SMEs looking for capital to support their operations and growth.

Our unsecured business loans range from $5,000 to $200,000 and can be used for eligible business purposes such as working capital, cash flow, stock purchases and business growth. Because the funding is unsecured, businesses do not need to provide property or another major business asset as collateral. Approval, terms and eligibility are subject to assessment.

If your business is exploring funding, apply online to provide your business details and funding requirements for assessment.

Frequently asked questions about business finance

What is business finance in simple terms?

Business finance is money used to start, operate or grow a business. It can come from the company's own profits, investors or external funding such as business loans and lines of credit.

What is business finance used for?

Businesses can use finance for purposes including working capital, stock, equipment, marketing, hiring employees, managing cash flow and expansion.

Can business finance be used for growth?

Yes. Business growth financing can provide capital for investments such as additional inventory, new equipment, hiring, marketing or expansion. Businesses should consider the cost of finance and whether repayments are sustainable.

What finance options are available to a business?

Common options include business loans, lines of credit, equipment finance, invoice finance, business credit cards and equity investment. Availability and eligibility depend on the business and finance provider.

What is a business financier?

A business financier is an organisation or provider that supplies funding to businesses. Depending on the provider, this could include business loans, asset finance, credit facilities or other commercial finance products.

How do I choose business finance?

Start by defining how much funding you need and what it will be used for. Then compare eligibility requirements, repayment structure, term, security requirements, fees and the total cost of different finance options.

Choose finance that fits your business

Business finance can help an Australian business manage timing gaps, purchase assets or act on a well-defined growth opportunity. The right option depends on the purpose, amount, timing, repayment capacity, security and total cost.

If your business needs funding for working capital, stock, wages, supplier payments or growth, review the unsecured business funding options and provide your business details for assessment.

This article is general information only and does not constitute financial or legal advice.