Funding To Start Or Grow A Small Business

So you need funding to help you start or grow your small business in Canada? Great. But what is the next step?

We are often contacted by entrepreneurs all across Canada who are starting a small business or expanding their current business operation and are in need of funding. The few of the most occurring questions we get asked are:

Where can I get funding for my small business?

What are my funding/financing options?

Can I get free money to start or expand my business?

Each and every business is unique and the funding needs vary from person to person, from industry to industry and from location to location, but generally speaking funding is available from multiple sources, often in the form of grants and loans or private investments. There is also “free money” available, but there are also many conditions with this “free money”. Read on.

Where can you get funding for your small business?

There are many reasons why a person wants to start a small business and the number one is to make more money and be independent. But all that planning doesn’t always work out simply due to the fact that first time entrepreneurs often misjudge the need for startup funding. A small business that is lacking initial startup funding will not get very far, so it is very important to plan ahead.

There are many different ways to fund your small business. Majority of people will turn to their friends, family members and use their own assets to capitalize and fund their business. However if you are seeking a larger amount and don’t believe that your friends and family will have it (or you don’t want to put them in that situation), there are other options to finance your small business.

Some of the alternative funding sources include:

– Your Bank (loans, lines of credit, credit cards…etc)

– Business Partners (their bank, assets, friends/family…etc)

– Private Investments (angel investors, equity loans..etc)

– Your Government (grants, loans and tax breaks)

No matter the source of funding you opt to go with, or are able to go with, it is critical that you ensure you know how much funding you actually need, what you need the funding for and that you have a plan on using, and paying back if owed. The last thing you want to do is borrow and not be able to pay back.

We recommend using our Funding Database to search through over 1,500 sources of government grant, loan and private funding programs. All programs and sources are listed and categorized, making it easy for you to do a simple search based on your location, your industry and your funding needs and be matched to programs or sources that may be right for your small business.

What are your funding/financing options?

Many small business owners shy away from loans and the main reason is that they are afraid of “borrowing” and having to pay back. The other reason is that they are afraid of falling into the high risk category and being denied funding. It is important to know that as much as you want to start a business, borrowing money is often the only solution if you don’t have your personal funds to back your venture up. There is nothing wrong with borrowing money, but if you don’t know how to mange your borrowed money and aren’t able to pay it back, it is worrisome.

When opting to borrow money keep in mind the same questions from above, be sure to know how much money you need, why you need it and what your plan is to pay it back. Unlike your family and friends (who trust you), banks want to ensure that they will get their money back. It is important to have the “4 C’s” in order and definitely have a business plan available.

The 4 C’s are: Credit Rating, Capacity to repay, Capital and Collateral. Simply put, be sure you have a good credit so you can show the banks that you are able to pay back your borrowed amount. be able to show examples of your loan repayment from personal or business dealings. Be sure you don’t borrow more than you make or already owe, and be sure you have some assets. Banks love assets.

When borrowing money in the form of a loan be sure to make an appointment and allocate enough time to the loan application. No matter how good or bad the situation is, be honest and be prepared. If you don’t understand something, ask questions and ensure you have a plan going in to the meeting.  Also be ready to negotiate!

There are certain things to also try and avoid doing such as being impatient, making promises you can’t keep, asking how much you can borrow versus giving the bank a figure. Don’t negotiate terms before the deal has been presented. Don’t spend the money before you get it and ensure that there are no surprises.

Other than a loan as a funding option, you are left with a grant, or investment.

Grants are often provided either by the government of Canada or certain charities and organizations. If you are able to apply and obtain a grant, ensure that you meet the required demands and follow the terms of the grant. As for investments, because they are often negotiated with terms, simply be able to follow the terms and try to keep as much equity of your business as possible.

Can you get free money to start or expand your business?

The last question is about free money. So does free money really exist? It sure does.

However where most people get confused is that there is a belief that free money is actually free money to be used for whatever you want. But there is a catch.

If you are offered free money (and we aren’t talking about your Aunt giving you money), but let’s say the government of Canada, there are rules and terms you have to follow to ensure that the “free money” doesn’t turn into “you owe us this much back!”

So, if you are applying to a grant that is offering you the so called free money, you have to make sure that you follow the funding agency guidelines for the money. Some agencies may say that you have to use the money for a very specific thing such as: hiring and training staff, while others may say the free money is only to be used to purchase equipment…each agency/funding program may have different rules. Be sure to follow them, otherwise you may be asked to pay it back.