small business funding

Starting and growing a successful business takes a commitment of time, hard work and, in some cases, money. Although there are many business ideas that you can get started with very little or no money, you may benefit from a cash infusion to launch or grow your business.

Whether you are just starting out, or whether your business has been active for some time and is looking to expand, there are a number of ways to secure funding to advance your business ambitions. Depending on what your business plan involves, the amount of money you require, the type of loan you are seeking, and whether or not you are willing to give up business equity, there are different options to finance your startup. If you are unsure of how much financial backing your business startup will need, or what costs might be involved, a financial plan template can be a great help.

Most entrepreneurs start out by bootstrapping the initial capital for their business startup. In fact, more than 80% of new businesses are established through the entrepreneur self-funding the business. This can be a highly rewarding, but more difficult way of starting up a business.

Entrepreneurs who choose to bootstrap their businesses work to build a business with nothing but personal savings and cash flow from sales being generated. Little or no outside investment is involved, and the entrepreneur takes on the entirety of the financial burden and risk. This option may limit the business growth, depending on the amount of personal savings being invested, however, the business owner is able to keep control of all decisions made for the business.

When you require additional financial support to continue the traction of your business model, there are a number of different opportunities available to you.

What are the most common business finance options?

There are many different business finance options available to you for financing, but you may want to consider a few factors before determining which options is best for you and which fits best with your business strategy:

  • How much financing is needed to start or grow your business?
  • Are you willing to take on investors in exchange for a portion of your business ownership?
  • What will the cost of borrowing be?
  • Will your business or personal credit make some business funding options difficult to obtain?

Depending on what your answers to the above questions are, you will want to carefully consider the sources of your business funding. Here are some of the most common funding sources for businesses:

 1. Financing from financial institutions

Obtaining business loans from a traditional bank or another financial institution usually comes at a lower interest rate, however, it can be a little more difficult to secure. When using banks for small business financing, they will typically want to see a detailed business plan, including financial projections, as well as a good credit score for the business owners. These institutions also prefer seeing that the business is generating revenues, does not have bad credit, and has positive financial projections for the future before approving any business loans. One advantage of obtaining financing traditional bank loans is that they do not take a stake in the business so you, as an owner, remain in control of the decisions being made. Another advantage to financing your business through a bank is having the option to take short-term loans, business lines of credit, or a credit card where you can begin to build positive business credit. Both business lines of credit and a credit card give you access to revolving credit for the business, where you are only paying interest when you are using the available credit. To get an idea of how long it will take to repay the loan, you can use a business loan calculator to figure out what your monthly payments might be and what the total interest adds up to over the borrowing period.

2. Angel Investors (this is typically a financing option for a new startup)

Having outside angel investors entrust their money in your business may be a great financing option for your startup business if you are just starting and do not have a history of revenues to present to the bank or if you have poor personal credit. These individuals are often experienced business people who are looking to be among the first investors of promising business startups. Having the financial backing of angel investors shows other investors that your business has the potential to be highly successful, as angel investors are willing to put their money into it before any profits are shown. There are several organizations, such as the Angel Investment Network and the National Angel Capital Organization, that bring together potential angel investors and help connect them with Canadian startups in all industries.

3. Venture Capital Investors (this is typically a financing option for existing business with revenues)

Typically venture capital is a financing option for those businesses that are already established, while angel investors will put startup funds into emerging businesses. Whether you pitch to venture capitalists or angel investors, you will likely still need to present your business plan and forecasted revenues. You are more likely going to either have to pay a higher rate for borrowing money or give up some equity or ownership in the business in exchange for the investment. Groups like the Canadian Venture Capital & Private Equity Association help partner together businesses with their members, in an effort to build the economy through investment in business growth.

4. Crowdfunding

One of the more popular sources of funding of late has been crowdfunding. This is where you would essentially take small donations from those interested in the product or service you are pitching and want to help see that you are able to launch your idea. Some entrepreneurs seeking crowdfunding will provide incentives to potential donors, such as first access to the new product or service. This option can make it easier to obtain funding, since you are asking for smaller amounts from those who would benefit from your business, without having to give up any ownership equity. One drawback, however, is that if you do not meet your funding target, many crowdfunding sites will give back all of the money pledged by donors. Possibly the world’s most famous and successful crowdfunder is Tesla owner Elon Musk, who has created the most lucrative crowdfunding campaigns in history, utilizing the power of crowdfunding sites to finance his upcoming business ideas.

5. Leverage your assets

In simple terms, leveraging your assets means you are either utilizing the potential future appreciation of existing assets or borrowing money to buy assets with the expectation that they will generate more income or appreciate at a greater rate than the borrowing costs. While leveraging your existing assets or borrowing money to buy more assets is a much riskier route, there are also advantages to choosing this option. One of the biggest advantages is that you can generate cash flow from new business ventures you may otherwise not be able to afford. As long as the return is more than the cost of borrowing, leveraging is a great option, however, the risk is that you are betting that the return will be greater than the cost.

6. Government grants

The Government of Canada and Provincial governments offer a number of business grants for small to medium businesses, both general in nature and industry-specific, as an option for financing a startup business. When applying for business grants through the Government of Canada or Provincially, be sure to carefully read all of the instructions and qualifications for applying, so ensure you do not miss any details or components that may disqualify you. Do not just re-use a general written application for each grant; Instead, take the time to compose your application to be specific to each grant. Also, consider submitting any ‘optional’ pieces of information to bolster your chances of obtaining the grant.

You can find more information about Government of Canada grants using the links below:

Benefits finder

Industry-specific grants

Scientific R&D tax credits – these do not only apply to high-tech businesses, and they are also available for some Sole Proprietorships and General Partnerships.

7. Private awards

Depending on the industry you are in, there may be the potential to apply for financial awards offered through related companies. Some awards, such as Cartier’s Women’s Initiative, offer both regional and science and technology awards with the hopes of empowering women entrepreneurs. Other awards, like Telus Pitch, and Startup Canada’s SDG Pitch Competition offer cash prizes to small business owners who compete to have their pitches heard by a panel of venture capitalists. Keeping your ear to the ground, networking with other entrepreneurs, and staying involved in your industry can increase your chances of hearing about and having the opportunity to apply for these awards.

It is not always possible to scale a business organically, without any outside sources of financing. In many instances, launching a business idea or growing an existing business requires some type of financing. We have outlined just a few of the options for obtaining financing for your business, however, it is always recommended to speak with an accountant, financial advisor, or other financial experts to see what the best options are for you and your business.

Should you have any questions, please feel free to reach out to our staff for additional information and assistance.

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Ontario Business Central Inc. is not a law firm and cannot provide a legal opinion or advice. This information is to assist you in understanding the requirements of registration within the chosen jurisdiction. When you have legal or accounting questions, we recommended that you speak to a qualified professional.