Business Structure 5 – Opportunity to raise capital

Exhausted of spending all your time reading endless articles about business requirements, and not really getting what you actually need?

Want to actually understand all the information you require to start and run your business?

Well, you’ve come to the right place!

Welcome to our series of Little Tips where we will cover a range of topics on starting and running your very own business.

Check our first topic – Introduction to Business Structure where we briefly explained the main issues in a simple and readable manner. In each post we will look at each structure from the following points of view:

• Risk
• Profit Distribution
• Taxation
• Opportunity to Raise Capital
• Costs to Run

These tips should only be used as a guideline as there are many implications for each type of business structure which should be discussed with your accountant/lawyer.

We continue discussion of different types of business structure and today we will compare them from the point of view of raising capital.

Sole trader

Hmmmm. Forget about investors. Banks also would not be happy to lend to you as you don’t have a stable income.

Partnership

Investors are still not for us, but you have a partner and maybe not one who will bring an additional capital! Also, it is easier to get a loan from the banks (but keep in mind about 4 years in the business, mentioned above).

Trust

As the trust is holding assets for the benefit of the beneficiaries only (which is a family), the investors are still out of question as they can’t receive any profit from the trust. The problem with the banks – some of them more likely will decline loan applications to a family trust, others may request for all adult beneficiaries to be guarantors. You think it is not a problem? Most of the trust deeds include the whole family as potential beneficiaries – spouse, parents, grandparents, kids, grandkids, sisters/brother, cousins and so on. Meaning you will need to collect income confirmation from ALL of them. Ouch.

Company

If you have a company, you can raise capital from both – banks and investors!

Even more – if you satisfy the early stage innovation company requirements, the investors would be happier to invest into your company!

PS In regards to the banks, no matter what structure you are in, unless your business has been operated for at least four years and has stable income, most of them will refuse to lend you money. You may get up to $200,000 as a start-up, but only from the big four banks.

PPS If you’d like to know more about different types of finance, chick this guide from SprinLaw: https://sprintlaw.com.au/guides/finance/

Stay tuned and subscribe for the next topic in our “Little Tips” series. Up next we discuss the Cost to set up and run in each business structure.