Business Finance Solutions for Canadians
Funding a small business, from the launch date through the first year of operation, is one of the hardest parts of being a new entrepreneur.
But if you’re dreaming of becoming a business owner or have an awesome idea for a business that you want to try out, it’s worth working to overcome this obstacle.
To do so, you’ll need to get educated on the business finance solutions available to small business owners in Canada. These range from loans and credit, to angel investors and more.
Keep reading to learn about some of your best options as a new business owner.
Start Small
From loans and credit to business incubators and angel investors, there are tons of business finance solutions out there.
But before you start seeking out these opportunities, you need to start small. This includes starting with a personal investment and potentially seeking out investments from your friends and family.
Personal Investment
Before you start seeking credit, loans, or other types of business finance solutions, it’s important to invest in yourself.
While you should by no means bankrupt yourself or your family in order to launch your new business, saving up money or investing a small amount of your personal savings gives you something to start with.
You should use this money for initial mock-ups of products or services, to launch a website for your business, and to create some advertising materials. You can then use these items to help sell your business idea to other investors.
Having your own money invested in your new business is also a great way to show potential investors that you are taking your new business seriously and that you are invested in your business’ success. After all, if it doesn’t look like the owner is invested, it’s unlikely that unrelated investors will be interested or confident in the opportunity.
Friends and Family
The last thing that you want to do is beg for money from your friends and family. After all, if you’re unwilling to seek loans or other business finance solutions, then it could be a sign that you are not invested in the success of your new business, or that you’re not in a good financial place at this time.
But you may be surprised to find that when you tell your friends or family about your new business idea, they’ll want to invest or help.
Keep in mind that involving family or friends in your business can get tricky. Even if they only invest a small amount, they may feel as though they are entitled to an opinion.
If you choose to take money from family or friends, make it clear what you plan to allow them to do. If you don’t want any input from them, make this clear before you take their money.
It’s also a good idea to establish what you plan to do if you aren’t able to return their investment through funds from your business. Just as with loans from a bank, you’ll need to have a plan in place to pay back family or friends with your personal money if your new business fails.
Loan Options
Once you’ve invested in your business with your own personal finances and any loans you choose to take from friends and family, you have a few other business finance solutions to choose from to cover the rest of your costs.
One option is to seek loans and credit to cover costs. Here are a few types of loans and credit to consider.
Credit Cards
For businesses with only a small amount of upfront costs or a large personal investment, credit cards can cover any additional small costs.
Credit cards are easy to obtain and use, and can help you get the money you need to launch your new business fast.
Be careful not to spend more than you expect to be able to pay back right away though, or else you’ll risk going into personal debt. It’s also a good idea to avoid opening too many credit cards, as it can be easy to lose track of how much you’re spending.
Credit cards also won’t be able to help cover large costs, like building a brick-and-mortar location or producing a product.
Also, keep in mind that the interest rates on credit cards are often much higher than that of other types of loans. If you don’t think that you’ll be able to pay off the card right away, it may be better to seek a loan instead.
Microcredit
If you need only a small amount of money, or if you are unable to get a traditional loan, microcredit might be the right option for you.
Microcredit often involves a small loan, of a few thousand dollars or less, with better interest rates than credit cards and a longer period to pay back the funds without penalties.
Lines of Credit
Another business finance solution designed for covering small upfront costs is a line of credit.
This is often supplied by your current bank through your regular checking account. A line of credit allows you to spend more than you have, but requires you to pay it back sooner than you would a loan.
This is a great option once your business is launched, but before you’ve received payment from customers or clients, to cover costs until that money comes in.
Commercial Term Loans
If you need more money than you can get from a credit card or more time to pay back that money, a commercial term loan might be a better option.
You’ll have to pay back your loan with interest, but you can get more funds to cover building costs, purchase inventory, etc.
Commercial Mortgage
If you will be purchasing property to start your business, another of your finance option might be a commercial mortgage.
This allows you to spend any other loan money or investments that you have on other costs for starting your business, or to buy a property that you otherwise couldn’t.
Supplier Credit
If you’ll need equipment or machinery to start your business, you may be able to seek a loan from the supplier of those items.
The loan rate and timeframe vary by supplier.
Other Investment Options
Loans and credit aren’t your only options for business finance solutions. There are also grants and investments that can help you cover any costs you have.
Angel Investors
Angel investors are often wealthy business owners or other individuals who invest in small businesses. They choose to take a risk using their own finances to invest and hope to earn a profit if that business is successful.
Angel Investors keep quiet because they choose only to invest in companies that they think will be successful. You’ll need to work to find them, using a resource like The Canadian Angel Investment Network.
Grants and Subsidies
The Canadian Government supports small business owners by offering a variety of grants and subsidies to help offset startup costs. These vary depending on the type of business you’re starting, where you’re located, and what industry you’re launching into.
Venture Capital
If you’re desperate for funds and aren’t afraid of taking on additional owners or partners for your new business, venture capital might be an option.
Venture Capitalists invest in higher-risk projects that they feel have the potential for success but need help to get there. They also usually require you to make them a partial owner or allow them to be otherwise invested in your business’ success.
Choosing the Right Business Finance Solutions
Choosing the right business finance solutions requires you to consider how much you’ll really need to launch your new business.
Start by creating a realistic budget. Break down every cost you think you’ll have when starting your business. When creating each total, be sure to round up and account for some unexpected costs.
Then, start by deciding how much you’ll invest from your own personal accounts, and subtract that amount. The remaining amount will need to be financed through investments, loans, and credit.
If the remaining costs are low, credit or small investments from friends and family might be enough. If the costs are high, you may need to consider loans or investments from angel investors or venture capitalists.
What to Do Before Seeking Financial Help
Before you start looking for investors or applying for loans, you’ll need to fully develop your business plan.
This plan includes choosing a name, creating product mock-ups, and preparing materials that you will then present to potential investors. These items should give them an idea of what they are investing in.
This process starts with choosing the perfect name for your business. You’ll need a name that is catchy and appropriate for your business, but also that is unique from other Canadian business names.
Once you’ve come up with a few potential names, check out our free NUANS Preliminary Search. It’ll help you figure out whether those names are available, or whether they are too similar to the names of existing companies.
Once you’ve chosen the perfect name, you can start the process of registering your business, choosing finance solutions, and launching your new business to success!
