The Different Between Government Funding And Bank Loans

Without a doubt when you begin to start up a small business, you need to raise the funds necessary in order to produce and sell your product/service. It takes a great deal of money to initially get your business off the ground as it involves spending money on the production, on marketing, on distribution, on salaries, etc. One of the biggest reasons that small businesses fail is they simply don’t have enough money raised to survive during the initial years of establishing clients and consumers.

This why obtaining funding and loans is what most entrepreneurs look to first especially when starting out. In order to obtain what you need to keep your business afloat, you need to know the major different between Government Funding and Bank Loans.

Government Funding:

So first of all, what exactly is funding? Funding is the process of having an agreement with either an organization (or in this case the Government) that is most of the time free of charge. They fund your business because they believe it will do great work in this country and will open up opportunities to create more jobs and grow our economy. Government Funding is available at every branch of government: federally all the way to municipally, because if your small business succeeds, Canada exceeds as well.

Bank Loans:

On the other side of the spectrum is obtaining “financing” through bank loans. There is a major difference between the funding aspect and the financing aspect. Financing is when a bank offers a company money (a loan) that they expect to be paid back with interest. There is an expectation here to have their loan paid back with interest.

What Is Better?

Obviously when reading the above descriptions of Government Funding and Bank Loans, one tends to lean towards funding because, of course, it is free. However, having a small business loan with interest is most of the time unavoidable and can actually help you stay afloat when you need it most. The reason is it can be harder to obtain government funding, and will be easier to get a bank loan. The key aspect for both cases is to have a solid business plan to present to them, to build your credibility, and gain their resources.

At Canada Startups, we have a fantastic Business Plan Builder that is a tool that helps you created a professional Business Plan that both banks and the Government will look at. As well, one of our tools is the StartUp Portal that will guide you through each step of starting a small business in Canada. It will be here that will be a more in depth guide to both getting Government Funding and how to obtain a strong bank loan, that you will be able to pay back.

In both cases it is integral to do your research and eventually apply for one or the other, or both because you will definitely need to raise capital in the first few years of your business.