Loans vs Equity vs Self-Funding: Your NZ Business Funding Options Explained
Self Funding your Business (Bootstrapping)
This means leveraging your own savings or reinvesting early profits. It’s often the very first step for businesses and a great way to get a business idea off the ground. As an example, many hospitality owners start by self funding a food truck, gradually reinvesting profits until they can open a cafe or restaurant.
The Good Stuff:
You stay in control and keep full ownership, with no investors to answer to
Freedom to grow at your own pace: with no external funders involved, there is no timeline for repaying debt or generating certain returns
Things to Consider:
Growth is typically slower than with external funding - the pace of expanding is tied to the cash you can generate
Personal risk: if the business doesn't succeed, your personal savings are on the line
Bootstrapping can be a smart way to build your business, but it takes a lot of resourcefulness and it’s not always sustainable if you want to scale quickly. Many businesses eventually leverage some type of external funding to keep growing.
Getting a Business Loan or Facility (Debt Financing)
This is one of the most common pathways for many New Zealand businesses. Debt financing can provide a boost for a business without giving away equity. This includes traditional business loans secured against business assets, invoices or property, or a facility with a pre-approved limit to dip into as needed.
For example, we recently came across a Kiwi startup that secured a large order for their machinery. They used a business loan to fund production so they could deliver on time, a classic case of using debt to fuel growth without giving away ownership.
The Good Stuff:
This is typically a faster and more accessible path to many than raising equity
Business owners can keep ownership and decision making
Repayments follow a set schedule, which can help with financial planning
Interest costs of business loans may be tax deductible (best to check with your accountant), with the latest NZ Investment Boost program allowing additional deductions for new asset purchases specifically
Things To Consider
Businesses need to consider the interest costs but also any additional fees that may come with loans such as establishment or management fees
Repayment schedules must be realistic and fit future cashflow
Some loans require personal or business assets as security
The single most important thing we see from our day to day at Bizzy: have your updated financials ready and get ahead of your finance needs before it becomes an emergency situation.
As one of our directors Mike Burke says:
"It’s easier to ask for an umbrella when it’s sunny than asking when it’s already raining."
Raising Capital with Investors (Equity Financing)
This involves raising money by selling a stake in your company to investors. Unlike debt, there are no repayments, but the cost is giving up a portion of your equity and control in the business. While securing this type of funding can be difficult in a tight economy, a successful raise can provide significant capital to fuel rapid growth, especially in high growth sectors.
New Zealand startups like Xero scaled through several rounds of investments over the years. Investors can provide capital, and often also come with valuable networks or expertise to help the company scale.
The Good Stuff:
If successful, this can unlock access to large amounts of capital
Investors can bring expertise, networks, and strategy
Can enable rapid growth for specific phases of the business
Things to Consider:
By raising capital business owners are giving up some ownership and control
Investment rounds can take significant time and effort away from the business
Harder to access, especially in tight economic environments - we found investors increasingly look for already developed businesses with a clear path to revenue, rather than just funding an idea
Investors expect significant returns - most institutional investors aim for 10x returns on their investments as an example
At Bizzy, we have first hand experience raising capital in New Zealand ourselves to grow our platform and support more businesses in the future. Having said that, it does not fit every business and every stage and it did take significant time and effort. As one of the investors we worked with recently told us,
“Many people don’t know this, but fundraising really is a full time job.”
Leveraging Grants & Government Support
Another path worth mentioning are targeted funding schemes in New Zealand. Agencies like Callaghan Innovation provide grants for R&D and tax incentives, while the Regional Business Partner Network offers capability support. While some grants can be highly sought after, they are worth exploring if you qualify.
The Good Stuff:
Non-dilutive, meaning you don’t give up equity or control
Added support: many schemes provide mentorship, advice or other capability support
Things to Consider:
Usually tailored to specific industries or business stages
Depending on the type of grant, some applications can be time intensive
Competition can be high, with some grants highly sought after
Our experience is that even if you don’t qualify for the grants, connecting with regional business support networks can unlock additional support for your business, such as access to capability mentors or students looking for valuable work experience.
So what's right for my business?
There’s no one size fits all approach to funding your business. For some, self funding to get started can be enough. At Bizzy, we see many businesses that get creative and typically leverage multiple forms of funding over the years like a mix of business loans or even investor support.
As equity investments and grants can be harder to access, we see growing demand for capital in New Zealand especially through debt financing options. That’s why Bizzy focuses on making it simple to compare lending options side by side - we connect you directly with New Zealand’s leading debt finance providers, so you can secure the right support with confidence, without losing weeks of applying to different providers individually.
What other paths have you tried as a business owner, and what other options should we include in this list? The best part of our day is talking to business owners, and we always love to hear your stories and challenges.
Want to explore funding options for your business?
Bizzy is free to use for businesses - browse multiple quotes with only one application, all in one place.
