Australian businesses are getting funds in different ways and in large amounts. According to the Australia Alternative Lending Business Report 2025, the domestic market for alternative lending reached US$17.70 billion in 2024 and is expected to reach $33.58 billion by 2029. The growth of alternative lending is not due to new businesses unable to open a bank account, but from retailers, e-commerce operators, manufacturers and services that have decided to finance outside the traditional banking system.
However, this is both a choice and a roadblock for some SMEs. It will take weeks for approvals and collateral requirements, excluding asset-light businesses. For a business trading under 2 years, a traditional financing option may not be feasible even though the revenue looks healthy. As the difference between what the business requires and what the bank can finance continues to widen, the alternative financing options become the solution.
Alternative financing involves a wide variety of structures outside traditional bank lending, such as invoice financing, merchant cash advances, government grants and trade finance. This article breaks down 7 of the most relevant options for Australian businesses and how business owners can determine which works best.
Alternative finance is any business funding that sits outside the conventional banking system. The definition is deliberately wide because the landscape genuinely is short-term debt, asset-backed facilities, government grants and equity arrangements in which investors take a stake in the business in exchange for capital. Most products fall into 1 of 2 categories:
Non-dilutive financing refers to obtaining funding without giving up ownership. You will pay back the lender through monthly installments, a percentage of revenue or on receipt of payment for invoices, but you still own the equity. Invoice financing, merchant cash advance, trade finance and line of credit are examples of who wish to keep control over their capital structure.
Dilutive financing means exchanging of equity for funds. Among various types of dilutive financing, equity crowdfunding is more accessible for smaller businesses, while venture capital funding are more advanced forms on the spectrum. However, the trade-off is straightforward: you get funds that do not have to be paid back, but you share the future profits as well as decisions made. This financing structure is more suitable for fast-growing companies that require a large amount of capital.
One thing that needs to be clarified is that alternative finance is not a backup plan for companies unable to get a business loan from a bank. For many entrepreneurs in Australia, alternative financing is a conscious decision because the flexibility, speed and product fit that alternative financing providers offer simply cannot be replicated by a major bank, regardless of your credit profile.
Invoice financing, also known as debtor financing, enables a business to get the funds from its unpaid invoices without having to wait for 30 days, 60 days, or 90 days until its clients pay off the amount. The financier disburses money equal to 70 to 90 percent of the total value of the invoices, which is paid by the company once payment comes from the client. The finance provider lends a certain portion of the outstanding invoice amount, usually ranging from 70% to 90%, while the business is able to get the balance after the client pays.
It is especially suited for B2B businesses that have long payment terms, for example, wholesalers, service providers, or companies selling products to big retail companies. The funding will be based on your accounts receivable, which means that your eligibility for such financing will mainly depend on the credit standing of your customers.
Best for: Businesses with reliable B2B revenue but slow-paying clients.
Key consideration: There is a lot of variation in the amount of fees and discount rates charged by different providers.
Choco Up offers invoice financing designed specifically for growing Australian businesses struggling with long payment periods.
A merchant cash advance offers the business a one-time injection of funds that is paid back in percentages of daily or weekly credit card sales. The main benefit of a merchant cash advance is that payments depend on earnings, hence slow times mean low payment amounts.
The approvals of a merchant cash advance are often based on card sales history rather than years of financial statements, which means that it is more accessible for companies that would be unable to obtain financing through conventional lenders. This is typically more profitable for retail stores, hospitality operators and e-commerce enterprises.
Understanding the cost structure is very important before signing the agreement. A merchant cash advance is based on a factor rate instead of the interest rate. For example, the factor rate of 1.3 means that you pay back $1.3 for every $1.00 that you borrow. The calculation of the effective annual interest rate on this amount might seem quite high when compared to the term loan, but considering that the company will need money quickly and would be paying it off fast, this may not be a fair comparison.
Best for: Businesses with steady sales of credit cards or EFTPOS requiring quick money.
Key consideration: Understand the factor rate and total repayment amount before accepting an offer.
If you want to learn more about merchant cash advances, Choco Up’s guide to merchant cash advances offers helpful information.
Trade finance fills the gap between placing an order with a supplier and receiving payment from the supplier. In other words, your financing provider pays the customer for you, and you pay back the provider when the sale is made.
For Australian businesses importing from manufacturers in Asia or Europe, trade finance is often the product that makes international trade viable at scale. Without it, the business either needs to carry the full inventory cost itself or negotiate extended credit terms with the supplier, which will not be easy for a smaller business. SMEs from Australia that are either entering or expanding into international business may have slower adaptation towards trade financing than other businesses, creating a disadvantage for them regarding payment and supplier relationships.
Best for: Importers, wholesalers, and other businesses that sell products and have foreign suppliers.
Key consideration: Trade finance facilities are structured around specific transactions, so they work best when your supply chain and order cycles are relatively predictable.
Choco Up has provided a detailed breakdown of how trade finance works for Australian businesses if you are interested in knowing more about it.
Supply chain financing, or reverse factoring, might not be as common as the other alternatives mentioned above, but it can be beneficial to a business that reaches a certain scale. Unlike invoice financing, where the supplier of the buyer receives the payment early, supply chain financing is an approach started by a larger buyer who sets up a programme that allows their suppliers to get paid early at a discounted rate.
For SMEs as suppliers under this arrangement, it means access to early payment without having to negotiate directly with a lender. For businesses operating as buyers with a network of smaller suppliers, establishing a supply chain finance programme can actually strengthen supplier relationships and improve the reliability of their supply chain.
Supply chain financing is advanced for most start-up businesses, but for mid-sized businesses with a solid supplier network, this can be a valuable option to consider.
Best for: Mid-market businesses with established supplier or buyer relationships.
Key consideration: Supply chain financing is often facilitated through banks or specialist platforms, indicating that availability and setup complexity vary.
Inventory financing uses the goods that the business owns as collateral to get funding. Funds are disbursed based on the value of either existing or future inventory, and repayment takes place when the inventory is sold.
Seasonality is the main use case for inventory financing. For example, when a retail store wants to prepare for Christmas and back-to-school seasons, it will have to double its inventory 6 to 8 weeks before the revenue arrives. Without financing, the business would either end up using all cash on inventory or miss the chance.
The drawback of inventory financing is that not all types of inventory qualify. Goods that are perishable, too specialized, or lack a secondary market will attract lower advance rates or may not qualify at all. Businesses with fast-moving, standardized stock are suitable for inventory financing.
Best for: Product-based businesses with predictable seasonal demand or large pre-sale inventory requirements.
Key consideration: Advance rates depend heavily on the type and liquidity of your inventory. Make sure you understand what percentage a lender will advance before factoring this into your cash flow planning.
Government grants are not technically repayable, which means they should at least be considered, even if you have to go through some extra work applying for them.
At the federal level, there is the Research & Development Tax Incentive, which provides a tax offset for eligible research and development activities. This also applies to businesses that develop their products and processes through research and development work. State-based grant programmes differ greatly, but cover export readiness, digital adoption, skills development and regional business growth.
One thing to be careful about is that grants are often highly competitive and sometimes prescriptive about the type of funding they provide, which are the best solutions for immediate capital needs. They also rarely cover operational costs or working capital. However, if the enterprise is investing in innovation or growth activities which fully qualify under the eligibility conditions, it is difficult to disagree with the importance of grants.
Best for: Businesses with specific projects aligned to government priority areas, such as innovation, export, employment or sustainability.
Key consideration: Factor in the time and resource cost of applying. For smaller grant amounts, the effort-to-reward ratio may not stack up.
A business line of credit is a revolving facility, in which the lender sets a maximum credit limit for your borrowing, but you borrow and pay back as necessary. You will be charged interest on what you have borrowed, not on the total limit that has been set. Once you pay back, the funds become available again.
Because of the flexibility of a line of credit, it is appropriate to use it for handling fluctuating cash flows instead of funding one-time purchases. The company that is waiting for its customer to pay their invoice, bridging its payroll cycle, or covering a short-term operational gap can draw on the facility and repay it quickly, potentially at a much lower cost than a term loan that sits on the books for 24 months.
Some non-bank lenders in Australia are providing an unsecured line of credit with faster approvals and more accessible eligibility criteria than traditional banks, which has made it significantly more usable for smaller businesses.
Best for: Businesses needing flexible, repeatable access to working capital for operational smoothing.
Key consideration: Revolving facilities require discipline, as having access to credit does not mean it should always be used. It must be treated as a buffer instead of a funding source for growth investment.
The 7 options above cannot be interchanged as each of them is tailored for a different problem, revenue profile and timeline. Before choosing which one suits your business, ask yourself 4 key questions and answer them honestly.
Mixing up all these scenarios and using the same type of product to cater to different situations is one of the most common and costly mistakes for business owners. For example, The solution to a problem related to cash flow from slow-paying clients would lead to invoice factoring; An increase in the amount of seasonally stocked inventory requires funding that can be sourced through inventory financing or a line of credit; Scaling marketing spend or covering operational growth points towards an merchant cash advances or an unsecured facility; Capital for a specific innovation project may qualify for a government grant.
Products like merchant cash advances and revenue-based financing can scale with you according to your revenue. If your income is seasonal or fluctuating, then this becomes more important than the nominal interest rate. However, when the cash flow is steady, a structured term product with a fixed repayment schedule may be cheaper overall.
Products such as merchant cash advances and revenue-based financings are flexible because repayments are dependent on revenue. If your sales are slow, your repayments are also slow. This is important if your income is highly seasonal or variable. However, if your revenue is stable and predictable, a structured term product with a fixed repayment schedule may be cheaper overall.
The traditional bank loan process takes several weeks to complete. Most alternative finance products, such as merchant cash advance, unsecured loan or invoice financing, can be approved and funded within just a few days. If you require urgent funding, the approval time becomes important.
In most of the cases mentioned above, the answer is unnecessary as non-dilutive financial products enable business owners to retain full ownership. However, if the capital need is substantial and the business has potential for rapid growth, owners may consider equity crowdfunding along with debt-related financing solutions. This is not a financial decision but a structural one with long-term consequences. In fact, combining these products, keeping in mind the costs and repayments can actually be quite effective.
The choice of the right product depends on your specific situation, including what you need the funding for, when you need it, the structure of your revenue and how you want to manage repayment. In fact, this specificity is a strength, unlike bank financing, which is a one-size-fits-all approach, alternative finance enables you to fit your finances to your business, not vice versa.
Flexibility is one of the key features that Choco Up offers, with services such as unsecured business financing and invoice financing aimed at Australian businesses. You can explore the options or apply directly to see what your business qualifies for.
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