Sources of Financing for Small Businesses

As noted previously, many businesses fail or never get started, due to a lack of funds. But where can an entrepreneur raise money to start a business? Many first-time entrepreneurs are financed by friends and family, at least in the very early stages. Others may borrow through their personal credit cards, though quite often, high interest rates make this approach unattractive or too expensive for the new business to afford. In addition, entrepreneurs in Canada have several options for funding to start or grow their businesses.

Government Grants

The Canadian government offers a variety of grants to support small businesses, including those focused on innovation and research and development. These grants are typically non-repayable and can help entrepreneurs to fund their projects.

Some such grants include:

• Canada Small Business Financing Program (CSBFP): This program provides loans to small businesses to help them purchase or improve equipment or property. The program is administered by the federal government in partnership with participating financial institutions.
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• Regional Development Agencies (RDAs): RDAs provide funding and support to businesses in specific regions across Canada. Each RDA offers different programs and funding options to support small business growth and development.
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• Industrial Research Assistance Program (IRAP): This program provides funding to small and medium-sized enterprises (SMEs) to support research and development projects. The program offers advisory services and financial support to help SMEs develop and bring new products and services to market.
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• Strategic Innovation Fund (SIF): This program provides funding to support research and development projects in key sectors, including aerospace, automotive, and information and communications technology. The program aims to help businesses become more innovative and competitive.
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• Women Entrepreneurship Fund: This program provides funding and support to women entrepreneurs to help them grow their businesses. The program offers non-repayable contributions of up to $100,000 to support the start-up and growth of women-led businesses.

Government grants are an excellent source of funding for entrepreneurs in Canada and can provide much-needed financial support to help businesses grow and innovate. Entrepreneurs need to research and evaluate the different grant programs available to determine which ones best suit them.

Business Loans

Business loans are typically offered by banks, credit unions, and other financial institutions, and can be used to finance various business expenses, including start-up costs, equipment purchases, and working capital. Some common types of business loans available for entrepreneurs in Canada include:

• Term loans: Term loans are a type of business loan that provides a lump sum of money upfront, which must be repaid over a set period with interest. These loans can be secured or unsecured and typically have fixed interest rates and regular repayment schedules.
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• Business lines of credit: Business lines of credit provide entrepreneurs with access to a pool of funds that they can draw from as needed. These loans are typically unsecured and have variable interest rates, meaning that the interest rate can change over time based on market conditions.
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• Small Business Loan Guarantee Program: This program is offered by the government of Canada and provides guarantees to financial institutions to help them lend money to small businesses. This program can be used to finance start-up costs, equipment purchases, and working capital.

When applying for a business loan, entrepreneurs will need to provide the lender with a business plan, financial statements, and other documents to demonstrate their ability to repay the loan. It is important to research and compare different lenders and loan options to find the best fit for your business needs and goals.

Business Loans

Venture capitalists (VCs) are a type of investor who provides funding to start-ups and early-stage companies with high growth potential. VCs typically invest in exchange for equity in the company, meaning that they become part owners of the business. In addition to funding, VCs also provide support and guidance to entrepreneurs, drawing on their expertise and networks to help the business succeed.

When seeking funding from VCs, entrepreneurs typically need to have a solid business plan and a compelling pitch that outlines their company’s growth potential. VCs will also evaluate the entrepreneur’s team, market opportunity, and the competitive landscape when making investment decisions.

Angel Investors

Angel investors are high-net-worth individuals who invest their own money in start-ups and early-stage companies. Angel investors typically provide funding in exchange for equity in the company, and may also provide mentorship, guidance, and connections to help the entrepreneur succeed.

When seeking funding from angel investors, entrepreneurs typically need to have a strong business plan and a compelling pitch that outlines their company’s growth potential. Angel investors will evaluate the entrepreneur’s team, market opportunity, and the competitive landscape when making investment decisions. It is important for entrepreneurs to research and network with angel investor groups to find the best fit for their business needs and goals.

Crowdfunding

Crowdfunding has become more common as a means of raising capital. An entrepreneur using this approach would typically utilize a crowdfunding platform like Kickstarter or GoFundMe to attract investors. The entrepreneur might offer tokens of appreciation in exchange for funds or perhaps might offer an ownership stake for a substantial enough investment. Take a few moments to peruse Kickstarter or another site and see what types of businesses are proposed in your area or which are trending globally.

Incubators and Accelerators

Incubators and accelerators are organizations that provide support, resources, and mentorship to early-stage startups and entrepreneurs, to help them grow and scale their businesses. Here’s an overview of some incubators and accelerators for entrepreneurs in Canada:

• MaRS Discovery District: Located in Toronto, MaRS Discovery District is one of the largest innovation hubs in Canada. It provides resources and support to startups and entrepreneurs through various programs, including the MaRS Incubator and the MaRS Momentum program.
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• Creative Destruction Lab (CDL): CDL is a program for science and technology-based startups that provides mentorship, resources, and connections to help startups grow and scale. It has locations in Toronto, Vancouver, Montreal, and Halifax.
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• Platform Calgary: Platform Calgary is an incubator and accelerator that supports startups and entrepreneurs in various sectors, including technology, energy, and social innovation. It provides mentorship, networking opportunities, and funding support, as well as access to resources such as co-working spaces and maker studios.
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• Alberta Innovates: Alberta Innovates is a government organization that provides funding, support, and resources to startups and entrepreneurs in various sectors, including health, energy, and agriculture. Its programs include the Entrepreneurial Investments Fund and the Industry Commercialization Associates program.
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• ATB BoostR: ATB BoostR is a crowdfunding platform and accelerator that provides funding, mentorship, and marketing support to startups and entrepreneurs in Alberta. It also provides access to a network of investors and customers.

Incubators and accelerators can provide valuable resources, mentorship, and support to early-stage startups and entrepreneurs. It’s important for entrepreneurs to research and network with these organizations to find the best fit for their business needs and goals.