Guide a starter-kit for raising money

By YOKE HAR LEE

So you want to raise some money to finance your business? Do you do it by going for debt or finding equity?

These and other fundamental questions about how to raise finance are available in the latest edition of the Ministry of Commerce's guide Sources of Capital Available to Small and Medium Enterprises.

At its most basic level, it functions as a starter-kit for business owners looking for places they can raise money.

With a list of who's who in the New Zealand financial kingdom, the guidebook helps small companies deal with a whole host of financing issues, including some pointers on how to raise money internally if need be, and what investors look for before they decide to support a company.

According to the ministry's analyst Jason Leung-Wai, who helped to prepare this year's expanded version: "Many people whom we are in contact with say they want to raise money. We ask them, do you want debt or equity. The response is: 'What's the difference?'"

Raising capital could be an expensive exercise, he said, and the ministry's guide helped by providing a list of places which supply financing for businesses.

There is a noticeable increase in the supply of venture capital funds in the handbook, with new listings including Morel & Co's No 8 Ventures which invests between $250,000 to $3 million and I Grow New Zealand, a company providing expansion, development and early stage financing for sums ranging from $500,000 to $5 million.

From basic merchant banking, investment matching, to non-profit trust-based companies, the scope of companies is wide. The Women's Loan Fund, for instance, provides interest-free loans starting from as little as $50.

At the other end of the spectrum is Lombard Ltd, which can work on finding underwriting facilities for up to $20 million.

Ralph Penning, executive trustee of the Independent Business Foundation, an organisation representing trade associations, said there was a gap in the market for financing, especially for small businesses.

One of the things which the foundation has done is to help match small businesses with "angel" investors, private capital owners who put money in ventures they like but don't like publicity.

The foundation has helped to match 13 such deals and still has some funds to go but the demand could exceed supply very quickly. "Which is why we think there is a need for Government to provide some kind of standby facility to provide any top-up needed," Mr Penning said.

He said small businesses often encountered problems preparing documentation to raise financing, and that could easily swallow between $200,000 to $300,000 to prepare an extensive proposal.

Included in the ministry's guidebook is an excerpt sourced from Ernst & Young on the pros and cons of raising equity or loans.

It also sets out simple things like what to present when trying to raise money, what documents might be needed and what types of questions to expect.

Some 5000 copies of the guide are being made available.