Your Chances: Government Funding For Small Business

Government funding for small business; this is the ultimate question that we get from thousands of small business owners and startup entrepreneurs each month. What are the chances of “you” getting your small business funded?

Today, together, we will get that question answered once and for all.

Before we get started we have to understand what government funding for small business actually means.

So what does “government funding for small business” mean?

Small business funding provided by the government of Canada is a form of support offered by the government to help small businesses through monetary assistance (grants/loans, as well as through tax breaks, credits, support and  guidance). The Canadian government provides this type of funding to entrepreneurs across Canada in order to help build a stronger economy and to create jobs for Canadians. The Canadian government has hundreds of agencies as we discuss here that hand out funding to small business owners, but the simple truth is, not everybody is eligible.

The government provides small business funding in all of the Canadian provinces and territories, from different agencies and for different industries as well as for various purposes.

The different type of funding programs include:

• Equity Investments
• Grants, Contributions and Financial Assistance
• Loan Guarantees
• Loans and Cash Advances
• Tax Refunds and Credits
• Wage Subsidies
• Non-Financing Programs

The different types of industries that could be funded include:

• Agriculture and Fishing
• Energy and Water
• Manufacturing and Engineering
• Transport, Warehousing and Distribution
• Construction and Property Services
• Biotechnology, Medical and Chemical
• Creative Services and Media
• Professional and Other Business Services
• Consumer Products, Personal Services, Retail and Wholesale
• Recreation, Culture and Tourism
• Hotels and Restaurants
• Information technology and Telecommunication
• Mining

The different funding needs include:

• Commercialization
• To start or buy a business
• Buy or lease equipment or property
• Conduct R&D and to innovate
• Increase sales
• Export products or services
• Hire or train staff/employees
• Increase working capital
• increase productivity
• get a patent, license or apply a new technology
• reduce pollution or improve energy efficiency
• sell or close a business

The audiences that are most likely to obtain funding include:

• Youth
• Women
• Rural and Northern Residents
• Persons with Disabilities
• Immigrants
• Aboriginal

You can learn more about the different industries, funding needs and about government funding in general on the government website here.

Now it’s time to learn more about the different program types:

Grants, contributions and financial assistance

What are grants, contributions and financial assistance programs? Well, most people right away think that this is free money, or money that doesn’t have to be paid back. Most people think, this is a grant. However, they aren’t entirely wrong, but they are wrong if that is what you think.

First of all, grants are not given to everyone, despite thinking that you deserve it.

Grants come in many forms, and sizes and from many different agencies. You may be eligible to apply to a non repayable grant, a partial grant/contribution, conditional grant..etc

A non repayable government grant is the type of grant that is rarely offered, but is available to qualified individuals. This type of grant could give you a funding amount that you can use towards your own small business and never have to pay it back. It is a gift, or a contribution. However it is monitored from start to finish, and deeply investigated by the government agency to ensure that the funding was used for the exact purpose you requested it for. If after investigation the evidence shows that the funding of the grant was not properly used, you may be required to pay it back.

A partial contribution grant is an excellent way to get funding from the government. The funding agency involved is able to provide you with a percentage of what you are looking for as long as you are able to provide the other percentage. For example: if your small business requires funding for new equipment in the amount of $25,000, a partial contribution grant may be able to provide you with $20,000 towards your requirement with the condition that you provide the other $5,000. Often, partial contributions do not need to be paid back, but like the non repayable government grants, they are deeply investigated and monitored by the funding agency.

We also have conditional grants. These are types of grants that are often provided to help small business owners obtain the funding needed for their various needs, however they have conditions attached. The conditions depend on the funding agency, the funding program, the amount and of course you as the business owner. These funding programs often come with a condition such as: pay back the amount of the grant after 90 days, or after 1 year, or after you’ve reached a certain milestone.

Loans and Cash Advances

Loans and cash advances are another form of government funding/financial support that the Canadian government has in store for small business owners. This form of funding is simple to understand. As a small business owner, you apply to various government funding programs that focus on your specific industry, or that focus on your specific need, and they provide you with a loan or a cash advance based on your requirements. The condition is that they money is repayable with a interest rate agreed upon.

Loan Guarantees

If you are a small business owner who’s visited the banks multiple times and was not successful at securing funding due to inexperience, lack of business history, low to poor credit score…etc, you may be in luck. The Canadian government works with some of the most reputable banks and they offer guaranteed loans. This means that the government will co sign on your loan application, which ensures the lender that they are more secured having the government back you shall you not be able to make payments on the loan. The government agency takes on the risk while they act as your “mom or dad” and cosign your loan.

Tax refunds and Tax Credits

While this isn’t necessary direct funding, entrepreneurs across Canada benefit greatly by obtaining tax refunds and tax credits towards various business activities. A lot of tax benefits are provided to small business owners such as the business energy rebates, paid work experience tax credits, co-operative education tax credits and more.

Wage Subsidies

Wage subsides are another way you, a small business owner can benefit from the government assistance. The government of Canada has multiple agencies across Canada provide entrepreneurs with wage subsidies when you hire employees. What this means is that the government is willing to cover a percentage of the wage you pay your employees depending on the conditions. By applying to these types of funding programs you are looking at decreasing the need for a high cash flow, as the government will be able to step in and pay that percentage you cant.

Equity Investing

You’ve heard about Shark Tank, or Dragons Den, well the government has their own equity investing team. What this means is that the government of Canada offers various programs that are potential investment opportunities for your business on a long-term basis. These are not programs for one time funding, but they are focused on helping larger businesses obtain on-going funding in exchange for equity in your business.

So how likely are you to obtain government funding for your small business in Canada?

Very!

However, you do need to be able to meet the certain criteria before you apply. As mentioned above, each funding programs has it’s own criteria/requirements for who they accept into the programs, but let’s look at the similarities between the mass programs and see what your chances are:

• Your Location
• Your Industry
• Your Funding Requirements
• Amount of Money You Need
• Your Credit Score
• Your Business History
• Your Business Plan
• Funding Program Deadlines
• The Application

Seems easy, right?

Yes and no. The problem is that you first have to find the programs before you can start to determine whether you may be eligible for them or not. And truthfully this is where 95% of Canadian business owners give up. We’ve seen it happen many many times. In fact that’s one of the main reasons why we introduced our Funding Database to our Small Business Startup Platform.

As there are many different government funding agencies, there are certain ones that fund specific locations only. Remember that there are local only funding programs (meaning they fund only specific cities or regions), there are also provincial funding programs (meaning they fund only those provinces), and there are funding programs that are for anywhere in Canada.  This would be your first step when searching for funding.

Your industry is the next step. Because there are programs that fund various industries, and there are programs that fund only specific industries, you have to be specific in your search in order to find the right funding programs for your location for your industry. If you apply to programs that are outside your industry, you are wasting your time.

Your funding requirements also play a huge role in your success at obtaining funding. Just like your location and your industry, the funding needs are critical to finding the right programs. Think of it this way, if you looking to get help to be able to hire and train your staff, you probably wouldn’t want to apply to a program that is only there to help small business owners purchase equipment. Right?  You have to be specific and look for programs that covers the requirements that you need to have funded (in your location and for your industry). Certain programs may fund multiple “purposes”, while some focus only on one or two.

The amount of funding you actually need is the next big one. As an example let’s say you found a program that is right at home, for your industry and for your funding purpose, and you need to obtain $50,000 in order to be successful. However, that funding program’s max budget is $25,000. If you apply, and you ask for $50,000, you most likely will be denied (that’s if your application is even looked at). It is often recommended to break up the funding amounts into smaller chunks and apply to more funding programs, or more often to be able to successfully obtain funding.

The next step to consider when applying for funding is your credit score. How does your credit score affect your chances of getting your business funded? It’s simple really. Think of the government as a bank. Would you give money to somebody who has a bad credit score (or somebody who has bad money management skills)? Your credit score shows the government agencies the risk involved with lending you money That’s not to say that everyone with bad credit won’t get funded, but it is more likely to that you will get funded if you are on the upper side of the credit score spectrum.

Your business history, similar to your credit score has a big effect on the success of your application to funding programs as well. If this is your first small business (most cases this is true), government funding agencies look at you differently and take other factors into consideration more, such as your credit score. If you are a first time business owner, there is no way to avoid that, so being able to make a better business plan, a business presentation and a 100% effective funding application by following all of the funding agencies requirements should be on your top of the list.

Your business plan is one of the most critical components of any funding application. By having a well developed/constructed business plan you are telling the potential investor/ government agency that you know what you are talking about and that you are prepared. Without a business plan you are just another application form. Remember when applying for funding, your business plan should answer the questions of who you are, what you’re doing, how you’re going to do it, why you are here (applying), how it will benefit you, and talk about what makes you special.

One important factor that people forget when applying to funding programs are funding program deadlines. All funding programs have them, and knowing when they are is key to the success of your application. If you know that you need funding now, it’s probably too late to apply. It is important to think ahead, considering that funding applications are not responded to right away, it is recommended to give it 2-3 months. Knowing the application deadlines will help you estimate your odds at obtaining funding and when to apply.

The last item on our list is the actual funding application. This is where many many entrepreneurs give up, or mess up. To avoid ruining the applications on the last step, take into consideration that you have to be careful, detailed and smart about what you put in the application. Read the application over and over and ensure you understand before you begin filling out the forms. We often tell our members to have 2 copies of the application. Do one in a pencil, and the next one fill it in for sending.

Now that you know the requirements of being successful at finding programs and applying to them, the next step is to actually do it. Many entrepreneurs give up before they get started, but the fact is that majority of small businesses who fail at their first application are often successful the second time around. Be sure to start your research now and find the programs you may be eligible for. Use our Funding Database to locate and access over 1,500 funding sources including government grants, government loans, tax breaks/credits as well as private investors.