How should I choose between debt finance and equity funding?


For businesses growing quickly, there are often important decisions to be made around how to fund that growth. Many businesses will be faced with a decision around whether they look at debt or equity finance to take their business growth to the next level.

The panellists at our recent SME briefings, all Australian SMEs who export or are involved in export-related contracts, discussed some of the considerations they took into account when choosing debt finance versus equity funding, and explained why they chose the route they did:

Understand where to look
"We could never find [private equity funding] to be honest... I am just not sure where it exists and how you access it". - Daniel Visser, Wicked Witch.

Weigh up the costs.
“What I have learnt a little too late in life is that debt is a lot cheaper than equity” – George Buschman, Boost Media.

Assess what is right for your business.
“It is all about as much debt funding as possible... as little equity given away as possible” – Joel Montgomery, Affinity.

Balance the trade-offs.
“I think private equity funding or venture capital is a good thing. [But] you have to recognise it’s expensive in terms of what they ask for and controls and in terms of their involvement in the business.” – James Douglas, Carbon Revolution.

Consider your business goals.
“You lose a bit of control as you bring in external equity... it is not necessarily compatible with growing a business. We’ve avoided private equity and it’s made us a lot more sustainable as a business.” – Bruce Rodgerson, Rubicon Water.

Be aware of timeframes.
“The single biggest thing is timeframes. A lot of these funds have got a three to five year timeframe... that makes it difficult to work with unless you have that expectation.” - James Douglas, Carbon Revolution.

Hear from some of the panellists at our recent SME Briefings on what they took into account when choosing debt finance versus equity funding.