Business Finance: Options for Growth and Value Extraction

Whether you're funding growth, managing cash flow, acquiring another business, or extracting value you've built over decades—understanding your financing options is essential. The Australian and New Zealand markets offer a range of solutions beyond traditional bank lending, each with different costs, terms, and trade-offs.

This guide covers the main financing options available to SMEs in Australia and New Zealand, when each makes sense, and strategies for extracting value from your business without a full sale.

The Current Landscape

Lending to SMEs in Australia has grown by 12% over the past year, with overall lending up 25% since 2022. In New Zealand, the alternative lending market continues to expand as businesses seek faster, more flexible options than traditional banks provide.

The rise of non-bank lenders and fintech platforms has transformed business finance. While banks offer the lowest rates, they also have the strictest criteria and slowest approval times. Alternative lenders fill the gap with faster decisions and more flexible requirements—at higher cost.

Types of Business Finance

Traditional Bank Lending

Bank loans remain the most common form of SME finance, offering the lowest interest rates for qualified borrowers. They can be secured (requiring collateral such as property or equipment) or unsecured (no collateral, but stricter criteria and higher rates).

Asset Finance

Asset finance allows you to acquire vehicles, equipment, and machinery without paying the full cost upfront. The asset itself typically serves as security, making approval easier than unsecured lending.

Type	Ownership	Balance Sheet	Tax Treatment	End of Term
Chattel Mortgage	You own from day one	Asset on your books	Depreciation + interest deductible	Clear title once paid
Finance Lease	Lender owns	Off balance sheet	Payments fully deductible	Purchase option or return
Hire Purchase	You own after final payment	Asset on your books	Depreciation + interest deductible	Automatic ownership
Operating Lease	Lender owns	Off balance sheet	Payments fully deductible	Return the asset

Leasing vs buying: Choose equipment finance (chattel mortgage, hire purchase) if you plan to use the asset long-term and want ownership. Choose leasing if you need to upgrade regularly, prefer lower upfront costs, or want to keep assets off your balance sheet.

Invoice Finance (Debtor Finance)

Invoice finance unlocks cash tied up in unpaid invoices, typically providing 80% of invoice value within 24-48 hours. The remaining 20% (less fees) is paid when your customer settles. It's particularly useful for businesses with long payment terms or seasonal cash flow gaps.

The New Zealand invoice finance market is currently around $1 billion, while Australia's is valued at approximately $78 billion. Major providers like ScotPac operate across both markets, with dedicated teams understanding local business conditions.

Alternative and Non-Bank Lenders

Australia's alternative lending market is expected to exceed $20 billion in 2025, growing at 13% annually. These lenders fill gaps left by traditional banks, offering faster decisions and more flexible criteria—at higher interest rates.

Key players include:

• Judo Bank — Challenger bank focused on SME lending, typically $250K+
• Prospa — One of Australia's largest small business lenders, acquired Zip Business's commercial portfolio in 2024
• ScotPac — Largest non-bank business lender in Australasia, specialising in working capital solutions
• Lumi — Fintech offering $5K-$500K with decisions in hours
• Capital Connect (NZ) — Tailored lending for growth, acquisition, or cash flow

Private Equity and Growth Capital

For businesses seeking significant capital for expansion or ownership transition, private equity offers an alternative to debt. Total private equity investment in New Zealand reached $2.77 billion in 2024, up from $1.89 billion in 2023.

Unlike debt, private equity involves selling a stake in your business in exchange for capital and often strategic support. This can be attractive when:

• You need significant capital that debt alone can't provide
• You want a partner with operational expertise to accelerate growth
• You're planning succession and want to de-risk by taking some money off the table
• Your business has growth potential but insufficient cash flow for debt servicing

Key players in the ANZ mid-market include Direct Capital (NZ/AU, $20-80M investments), Anacacia Capital (AU, smaller mid-market buyouts), and various family offices and high-net-worth investors.

Refinancing Strategies

Refinancing replaces your existing loan with a new one, typically to secure better terms, reduce repayments, or access equity. The ideal time to refinance is when:

• Interest rates drop — Your current rate is significantly above market
• Fixed term expires — You're approaching the end of a fixed-rate period
• Credit profile improves — Your business has strengthened since the original loan
• Property value increases — Lower LVR qualifies you for better rates
• Cash flow is tight — Restructuring could reduce monthly payments
• You need capital — Equity in property or other assets can be released

Experts suggest reviewing your loan every 18-24 months. Most lenders will consider refinancing commercial property loans paid down to 60-70% LVR, with some extending to 80%.

Costs to Consider

Before refinancing, calculate total costs including:

• Early exit fees — Penalties for repaying before term ends
• Fixed rate break costs — Can be substantial if rates have dropped
• Establishment fees — New loan origination costs
• Valuation fees — If property security is required
• Legal costs — For new security documentation

Extracting Value From Your Business

Business owners often have significant wealth tied up in their companies. Extracting value doesn't require selling the business entirely—several strategies allow you to realise returns while maintaining ownership.

Dividend Recapitalisation

Dividend recapitalisation (or "dividend recap") involves taking on new debt to pay a special dividend to shareholders. This allows owners to extract value without selling equity—particularly useful for:

• Founders wanting to diversify personal wealth while maintaining control
• Family businesses balancing active and passive shareholders
• Owners approaching succession who want partial liquidity before exit
• Estate planning—reducing business equity value for transfer purposes

Tax treatment varies by jurisdiction. Interest payments on the new debt are typically tax-deductible, while dividends may be taxed at lower rates than capital gains. Work with your accountant to model the after-tax outcome.

Choosing the Right Finance

Key Takeaways

• Options have expanded — Beyond banks, alternative lenders and fintech platforms offer faster, more flexible financing
• Speed costs money — Bank rates are lowest but approval takes weeks; alternative lenders charge more for faster decisions
• Asset finance preserves cash — Equipment doesn't need to be purchased outright; choose the structure that suits your tax and ownership goals
• Invoice finance unlocks working capital — If cash is tied up in receivables, invoice finance provides immediate liquidity
• Review loans regularly — Refinancing every 18-24 months may reveal better terms as your business strengthens
• Value extraction doesn't require selling — Dividend recaps, property separation, and partial sales can realise value while maintaining control
• Structure matters as much as rate — Tax treatment, balance sheet impact, and flexibility can outweigh small rate differences

The right financing strategy depends on your specific situation—growth stage, cash flow profile, risk tolerance, and long-term objectives. What works for rapid growth differs from what suits succession planning or cash flow stabilisation.