Getting Money to Start a Small Business in Canada

Starting a small business in Canada can be very difficult and expensive. Many entrepreneurs that have succeeded have said that one of the major reasons for their success was being able to obtain the right amount of funding and running the business with capital needed for every move they made. On the other hand, many entrepreneurs who have failed said that the number one reason for their failure was lack of funding, or inability to control the money correctly.

You’ve heard it before, the old saying of “don’t put all of your eggs in one basket”, well the same logic applies to funding for your small business.

Why?

Let’s just say that you are starting a business and you know you will need $50,000 to get the idea off the ground and launch your business. Do you really want to borrow all $50,000 from the banks, or from an investor, a friend or put all of your cash in? Probably not a good idea.

There are many sources of funding available that can help you fund your small business. These include:

• Personal Investments
• “Love Money”
• Private Investors
• The Canadian Government

Think of it this way – your primary goal is to obtain money, one way or another. Do you want to show your potential investors that you already have other sources of funding, or do you want to show them that you need them, and only them for all of the funds.

Remember, obtaining funding is much easier when you have something to show already. In this case, show that you have some money, or at least other sources/people who will invest in you.

Whether you opt for a bank loan, an angel investor, a government grant or a business incubator, each of these sources has specific demands.

The first source of potential funding is Personal Investments.

Most people when they hear the words “personal investment” they over think the meaning and say “well, I don’t have any investments”. When it comes to investing in your business and the need for funding personal investments can mean any, or all of these: your savings, lines of credit, bank loans or credit cards. Investing some of your own money into your business also shows other potential investors that you are serious and that if it doesn’t work out, you will be losing something too.

The second popular source people turn to is called Love Money.

And no, love money doesn’t mean what you think it means. Instead, love money is the art of obtaining business funding from friends or family. Often times this is a easier way to get funded than going to the banks, but it also may have risks.

When borrowing money this way be sure that you know what you are asking for, and be sure that the person giving you money understands what you are asking for, what they are paying into and what they will be getting in return, and when. Don’t be afraid of contracts and don’t think just because it’s family, or friendship that it should not be taken seriously.

The third source is borrowing from Private Investors.

Private investors could be anybody and everybody who wants to give you money for a stake or for a return on their investment. Most often these people are either angel investors or venture capitalists.

These investment methods are not for everyone. Be sure to know that most venture capitalists usually invest in technology driven businesses and companies that have a clear growth potential. Venture Capitalists also seek for equity (a percentage share of your business and profits).

On the other hand Angel Investors are usually more likely to give you money than venture capitalists. Most angel investors provide their business experience, skills and contacts on top of their investment into your business in return for equity and sometimes control of your business (or a percentage).  Most angels like to keep a low profile, and getting a sit-down with an angel is usually difficulty – but very lucrative if you have an idea they are interested in and of course a quality pitch.

The last source of funding is the Canadian Government.

When people think about funding, they rarely think the government. But the fact is that the Canadian government actually passes out billions of dollars in the form of grants, loans and financial assistance to small business owners all across Canada each year. Not everyone qualifies to obtain government funding, but finding the right programs from the various agencies in Canada is often very difficult.

A grant or loan application is often required, along with a few other requirements such as a business plan, in order to obtain funding. The funding can come in the form of non repayable grants, partial grants, low interest or no interest loans, government back loans, tax credits or consulting.

These are just 5 of the top sources of funding summarized into the most common ones business owners across Canada end up finding their funds through. We highly recommend  trying the government of Canada for grants and loans, however any source is a good source as long as you are able to obtain what you want for the purpose of funding your small business towards its goal of success.