When you’re building (or scaling) a startup or small business, business financing often becomes the difference between “we have a great idea” and “we can actually execute it”.
But funding isn’t just about getting cash into the bank. The way you raise money affects your control, your risk exposure, your ability to raise more later, and the legal obligations you take on from day one.
The good news is: once you understand the most common business financing options in Australia (and the agreements that go with them), you can make confident decisions and avoid the traps that catch a lot of founders and SME owners off guard.
Important: this article is general information only and isn’t legal, financial or tax advice. The right option for your business will depend on your circumstances, and you should consider getting advice from a qualified lawyer and accountant (including on tax and accounting implications) before you sign anything or raise funds.
Below we’ll walk through the main pathways for business financing in Australia, what they usually mean legally, and the key agreements that help protect you, your co-founders, and your investors or lenders.
What Does “Financing For Business” Mean In Practice?
At a high level, financing for business is any arrangement that gives your business access to capital so you can operate, grow, or invest in assets. In Australia, this typically happens through:
- Debt finance (you borrow money and repay it, usually with interest)
- Equity finance (you sell ownership in your business, usually by issuing shares)
- Hybrid finance (it starts like debt but can convert into equity, or sits somewhere in between)
- Asset-based finance (funding secured against business assets, equipment, or receivables)
From a legal perspective, the big questions are usually:
- Who carries the risk if the business can’t repay?
- What rights does the funder get (repayment rights, security, voting rights, board seats, vetoes)?
- What happens next if you raise again, sell the business, or shut down?
It’s completely normal to focus on the commercial terms (how much money, and when you get it). But in most disputes, the outcome turns on the legal terms that people didn’t focus on at the start.
Which Financing Option Fits Your Business Stage?
There isn’t one “best” approach to financing for business. What works for a pre-revenue startup might be a terrible fit for an established SME with predictable cashflow (and vice versa).
1. Bootstrapping And Revenue-Based Growth
Many businesses fund early growth through personal savings, reinvested profits, or customer revenue.
Legally, it can still be worth tightening your foundations early (even before external funding), because once money comes in, it tends to move fast. For example:
- If you have co-founders, ownership and decision-making should be clear (before money or traction adds pressure).
- If you’re taking customer pre-payments, your customer terms should match what you can actually deliver.
- If you’re collecting customer data, it’s time to think about a Privacy Policy.
2. Business Loans (Unsecured Vs Secured)
Traditional debt funding can be attractive because you don’t give up ownership.
But debt still comes with legal and financial risk, particularly if:
- the lender wants security over business assets (or even personal guarantees), or
- your repayment terms don’t match your cashflow cycle.
In Australia, lenders often use a security arrangement (commonly called a general security) to protect themselves. That can affect your ability to borrow again later, sell assets, or restructure.
3. Private Investors (Equity Funding)
Equity funding is common for startups and high-growth businesses, especially where you need upfront capital to build a product, hire a team, or scale marketing before profits arrive.
Equity investment generally means:
- you’re issuing shares (or rights to shares later)
- investors may want control rights, not just economic rights
- you’ll need clean company paperwork to avoid problems in due diligence
If you’re raising equity, you’ll almost always want a proper Shareholders Agreement in place (or updated), because it sets expectations around governance, exits, and what happens if someone wants out.
4. Convertible Notes And Other “Hybrid” Funding
Hybrid funding can be a practical middle-ground when valuation is hard to agree on early. You raise funds now, but it converts into equity later (often at a discount) when you do a bigger priced round.
This can reduce negotiation time, but it also introduces legal complexity. The conversion triggers, discount rates, valuation caps, and investor protections should be crystal clear.
Depending on your structure and goals, it may be worth considering a Convertible Note style arrangement.
Key Agreements You’ll Commonly See In Financing For Business
When people think “funding documents”, they often picture a single contract. In reality, financing for business usually involves a small bundle of documents that work together.
Below are the agreements we commonly see (and why they matter).
Term Sheets (The Deal Blueprint)
A term sheet sets out the key commercial deal points before you spend time and money on full documentation.
It’s often used in both equity and debt deals, and can cover:
- how much money is being invested or loaned
- valuation (or how conversion works, if it’s a hybrid instrument)
- investor rights (information rights, veto rights, board appointment rights)
- conditions before funding occurs (due diligence, corporate clean-up)
Even where a term sheet is “non-binding” overall, parts of it are frequently binding (for example, confidentiality and exclusivity). So it’s important to treat it like a real legal document, not a casual summary.
For early stage deals, a structured Term Sheet can help keep negotiations efficient and reduce misunderstandings later.
Loan Agreements (And The “Small Print” That Can Bite)
If you’re borrowing money, a written loan agreement is where the real risk management happens.
Key clauses to look out for include:
- Repayment schedule (and whether you can repay early without penalty)
- Interest (how it’s calculated, when it compounds, default interest)
- Events of default (what triggers enforcement)
- Security and guarantees (what the lender can take if things go wrong)
- Financial covenants (rules like maintaining a certain cash balance or revenue level)
For SMEs, a common mistake is signing a loan with “standard” default clauses that don’t match how the business actually operates. For example, a seasonal business might breach a covenant in the off-season even if the business is fundamentally healthy.
Share Subscription Agreements (When Someone Buys Shares)
When an investor is buying shares (rather than lending money), a share subscription agreement usually sets out:
- how many shares are being issued
- the price and payment mechanics
- conditions to issue (like shareholder approvals)
- warranties about the business (what you’re promising is true)
This agreement often works alongside your Shareholders Agreement and constitution, so it’s important that they’re consistent.
Employment And Contractor Agreements (Funding Often Comes With Hiring)
One practical reality of financing for business is that funding is often used to hire.
Investors and lenders also pay attention to your team risk: unclear contractor arrangements, missing IP clauses, and inconsistent workplace documentation can cause major headaches during due diligence (and can become expensive disputes later).
If you’re bringing on staff, you’ll usually want an Employment Contract that clearly covers duties, confidentiality, intellectual property, and termination terms.
Security Interests, PPSR, And Why They Matter For Financing
If your financing for business involves “security”, you’re in a part of the legal landscape that many founders don’t think about until it’s urgent.
A security interest is essentially a legal right a lender (or supplier) has in relation to your business property, to secure payment or performance of an obligation.
General Security Agreements (GSA)
One of the most common forms of security for business lending is a general security arrangement. This can give a lender security over most (or all) of a business’ assets, which can include equipment, inventory, receivables, and sometimes IP.
If you’re considering secured finance, you may come across a General Security Agreement. It’s important to understand what assets are covered and what restrictions it places on your ability to deal with those assets in the future.
PPSR Registrations (Practical Impact On Your Next Funding Round)
In Australia, security interests are often recorded on the Personal Property Securities Register (PPSR). A PPSR registration can affect:
- whether another lender is willing to lend to you later
- whether you can refinance on better terms
- what happens if the business becomes insolvent
- how attractive your business looks in due diligence
It’s also important to be aware that security interests don’t just come from banks. Equipment financiers and even some suppliers can register security interests too, depending on how your contracts are set up.
If you’re on the lender side (or supplying goods on credit), it may be worth considering how to register a security interest properly so your position is protected.
Equity Funding: Getting Your Company House In Order
Equity funding can be an excellent tool for financing for business, but investors usually want confidence that your company is “investment-ready”. In practice, that often means your structure and documents are clean, current, and internally consistent.
Set Up The Right Structure Early (Or Be Ready To Restructure)
Many startups begin as sole traders or partnerships because it’s quick and cheap, then move into a company structure when raising.
That’s not necessarily wrong, but restructuring mid-flight can be painful if you’ve already signed customer contracts, hired staff, or built up valuable IP under the wrong name.
If you’re planning to raise capital, a proper Company Set Up early can make later rounds smoother (and can help separate personal risk from business risk).
Shareholder Rights And Control: Don’t Leave It To Assumptions
When you take equity investment, you’re not just taking money. You’re usually giving away a slice of:
- future profits (dividends)
- sale proceeds (exit value)
- decision-making power (depending on voting rights and veto rights)
A Shareholders Agreement often covers the issues that cause the most friction later, such as:
- how major decisions are approved
- what happens if a founder leaves
- how shares can be transferred (and to whom)
- deadlock mechanisms
- exit pathways (trade sale, buy-back, drag/tag rights)
If you’re bringing in investors, tightening this agreement early can help protect founder control while still giving investors the comfort they need to back the business.
Hybrid Equity Rounds (When Speed Matters)
Sometimes a business needs to move quickly, and a full priced equity round isn’t realistic in the timeframe. In those cases, founders may consider a simplified hybrid tool.
Depending on your goals and investor appetite, you might consider a SAFE Note style instrument to get funding in sooner (with conversion mechanics later). The key is ensuring the conversion terms are clear and fit your next likely funding round.
Key Takeaways
- Financing for business is more than getting funds in the door - it changes risk, control, and what you can do in future funding rounds.
- Debt funding can protect ownership, but secured lending and guarantees can create serious downside if cashflow tightens.
- Equity funding can accelerate growth, but you should be clear on investor rights, control provisions, and what happens on exit or founder departure.
- Key documents like term sheets, loan agreements, and shareholder documentation are where most “surprises” hide - it’s worth getting them right early.
- Security interests and PPSR registrations can affect your ability to refinance, raise again, or sell assets, so they shouldn’t be an afterthought.
- As your funding grows, your internal foundations matter more - especially company structure, hiring documents, and privacy compliance.
If you’d like help with business financing - whether you’re raising debt, equity, or something hybrid - you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
