Ok, so you have a great business idea but wonder how you are going to get the money that you need to start up. Or, maybe you are a new company in Canada and want to learn how to get the small business financing that you desperately need to grow your business.
Starting (and successfully running) a small business isn’t easy – there never seems to be enough money coming in to cover all of the costs. It’s a daily struggle to stay above the line financially, and you know that you need to get some money to keep your business alive.
There are a number of resources available to entrepreneurs, small business owners and startups; you just have to do some digging. Good news: we’ve compiled a list of sources to help you get started.
The different types of loans
Many businesses have more than one loan to cover all of their business needs. The most common types of loans are:
- Term loan (for asset purchases and start-up costs)
- Operating or revolving line of credit (for working capital)
- Mortgage (for land and building purchases)
- Government-guaranteed Small Business Improvement loans (for asset purchases)
- Lease (for equipment: especially computers, photocopiers, automobiles, and other assets that become outdated quickly)
- Supplier credit
Where can you go to find the money you need?
Sources of Small Business Financing in Canada
The following are some of the numerous sources of financing to consider to support your business venture.
- Agriculture and Agri-Food Canada
- Angel Investors
- Arts Board Grants
- Business Development Bank of Canada
- Clarence Campeau Development Fund
- Community Futures Development Corporations
- Entrepreneurs with Disabilities
- Family and friends
- Farm Credit Corporation
- Innovation Canada
- Insurance companies (in this case a cash surrender of the value of life insurance can be pledged to secure a loan)
- National Research Council
- Saskatchewan Indian Equity Foundation
- Saskatchewan Metis Economic Development Fund
- Traditional lenders (Banks and Credit Unions)
- Trust companies
- Venture Capital Fund
- Western Economic Diversification
- Women Entrepreneurs Organizations in Alberta, British Columbia, Manitoba, and Saskatchewan
Think outside the box. How can you alleviate your financial burden:
- Over a longer period of time?
Lease equipment instead of purchasing it
Negotiate leasehold improvements instead of paying for renovations out of pocket
- While you sell your inventory?
Supplier credit: if you are purchasing inventory from a supplier, you may be able to secure thirty, sixty, or ninety-day payment terms with suppliers. This will give you a chance to sell your goods before you have to pay for the inventory you needed to make it in the first place. However, this option requires consistency, patience, and trust: it may take six months of paying your suppliers on time for them to grant you credit terms.
Applying for Small Business Financing
When applying for financing, keep in mind that the lender will be looking to see if you have strengths in four areas, called the Four C’s of Lending.
The Four C’s of Lending Are:
- Character: demonstration of management ability and commitment
- Capacity to repay: demonstration of sufficient earnings and cash flow in the business to make loan payments
- Contribution: the value of your equity (cash, equipment, other) that you are personally investing in the business
- Collateral: what assets are owned and available to be pledged as security for a loan