Securing adequate funding remains one of the primary challenges faced by SMEs. Whether it’s for maintaining day-to-day operations, purchasing inventory, or planning for business growth, working capital is key.

Traditionally, businesses have turned to banks for loans, but with changing times, businesses are looking for alternative ways to secure funding. As Asian immigrants enter the Australian market, opportunities for alternative financing are created. Here, we’ll delve into the differences between traditional and the out-of-the-box funding and explore how Asian immigrants are supporting Australian businesses.

Traditional Funding

Traditional funding typically refers to bank loans. Obtaining funding has become harder in recent years, with stricter lending criteria and longer lead times. Some of the main characteristics and challenges associated with obtaining traditional funding include:

Lengthy Process

Traditional lenders, especially banks, often have a long and rigorous application and approval process. This can delay access to funds, which can be detrimental for businesses in need of quick capital.

Collateral Requirement

Many traditional loans require collateral, which means that the borrower must pledge an asset (e.g., own house) that the lender can seize if the loan isn’t repaid. This can be risky for borrowers.

Stringent Criteria

Banks and other traditional lenders often have strict criteria for approval. This can include a strong credit history, a proven track record of profitability, and substantial collateral.

Financing Costs

Borrowers have to pay interest on the money borrowed, which can increase the cost of financing. There might also be associated fees, such as application fees, processing fees, and early repayment penalties.

Inflexibility

Traditional funding often comes with terms and conditions that might not be flexible, such as restrictions on how the funds can be used or covenants that dictate certain financial ratios be maintained.

Personal Liability

In some cases, business owners might need to provide personal guarantees for business loans. This means that if the business fails to repay the loan, the owner’s personal assets could be at risk.

Out-of-the-box Funding

Out-of-the-box funding options have arisen out of the challenges SME businesses face to raise capital. In recent years solutions such as crowdfunding, invoice financing and peer-to-peer lending have been on the rise.

Since Australia is one of the top countries for migration, an attractive alternate funding source has gained popularity. Asian investors are now looking to invest in Australian businesses, particularly in the manufacturing, wholesaling and B2B services sectors. This has been significantly supported by the 188A visa.

By owning and managing a business for a period of 3 to 5 years and meeting specific commercial and immigration criteria, investors have the opportunity to secure permanent residency in Australia. This can be achieved through either the acquisition of an existing business or by purchasing equity.

This flexibility makes Asian investors one of the most appealing funding sources.

Larger Pool

188A immigrants are primarily from China, Vietnam, India, Malaysia and Iran. As in FY22, there were 2,551 188A visas granted to China citizens and 1,588 to Iran citizens. With access to thousands of Asian investors, Australian businesses can tap into a vast pool of potential funders, each bringing unique perspectives, expertise, and expectations.

Strategic Opportunities

Beyond just providing capital, Asian investors are looking for strategic partnerships. They bring to the table not just funds, but also industry insights, networking opportunities, and potential access to the Asian market.

Fast Access

Given the direct nature of these investments, the time between initial discussions and funds transfer can be considerably shorter than traditional bank loans.

Which is right for you

The answer to this is not straightforward, as the best funding option depends on the specific needs and circumstances of the business. Here are some factors to consider:

Amount

For large sums, banks might still be the go-to, but for mid-sized amounts, Asian investors can provide quick and flexible solutions for up to $500,000.

Purpose

If you need funds for a specific, bank-approved purpose, traditional loans are equally as good an option as Asian investors. However, for more varied needs, Asian investors offer more freedom.

Opportunities

Traditional loans don’t offer networking or growth opportunities. In contrast, partnering with Asian investors can open doors to new markets, industry insights, and growth strategies.

Conclusion

Asian investors are emerging as a fast and flexible way for Australian businesses to access funds for growth. As of June 30, 2022, there were 1,948 188A visa holders from China Mainland alone remaining offshore. In March 2023, China lifted COVID restrictions. Since then, we’ve seen a swarm of stranded Chinese investors arriving and returning to Australia.

For Australian businesses looking to expand, innovate, or even sell, now is an exciting time. If you’re an established business seeking working capital for growth, get in touch with us at Forward Business. A window of opportunity awaits!