9 Ways to Fund Your Small Business in Canada

Are you ready to seek funding for your small business but not sure where to start? This article will give you a high-level sense of the various types of funding and financing options out there and what steps you need to take to get them.

There are so many options out there, and while that’s great, it can be a little overwhelming. There are several variables that will impact which of these funding options are best for you.

The first thing you’ll need to confirm is how much funding you need. If you haven’t done that yet, use the Business Viability Kit to get started. This will help determine how many funding sources you’ll need, and which ones best align with what you’re looking for.

Each one of these funding options involves time investments including research, application writing, administration time and meetings, so it’s important to focus on pursuing the specific funding pockets that align with your values and will be most likely to succeed.

 

1. Personal investment (“bootstrapping”)

Bootstrapping involves putting down a lump sum of your own money (or personal loans) to start building your business as frugally as possible, investing more as you make more. Some famously successful bootstrapped companies include Patagonia, Spanx and Mailchimp.

Bootstrapping gives you flexibility in terms of not being accountable to anyone other than yourself. Limited budgets also have the added benefit of forcing innovation through a need to be resourceful.

This option limits you to your personal assets and requires careful strategic planning and contingency planning to lessen risks. Map out your financial plan, then determine how much of your own assets you want/need to invest in your business to get it up and running.

Even if you bootstrap your business to a degree, it’s a good idea to look beyond bootstrapping and see what else is available. You don’t want to leave potential money on the table.

 

2. Patient capital or “love money” from people you know

As the name suggests, patient capital or “love money” is a loan from someone (or a few people) close to you, like family or friends. They’re generally more flexible when it comes to taking time to pay back as the business starts to make money, and they don’t always require a return on investment. It all depends on your agreement.

As an investor, they might want to be more involved with the company. You’ll want to clearly define expectations and levels of input in the business.

It’s always worth considering how personal relationships can become impacted in this dynamic. Whatever the final agreement is, make sure all parties sign a legally binding document prior to your business receiving any patient capital.

When money is involved, even the best relationships can become strained, so really think this option out before diving in.

 

3. Venture capital (“VC”) investors

Venture Capital is more geared towards high-growth and tech-focused start-ups. VC firms and investors are looking for a significant return on investment through companies well-suited for quick scalability. They’ll evaluate your business plan and growth potential and typically invest in exchange for a certain amount of equity in the company.
Obtaining VC funding requires a compelling pitch, competitive business plan and viable rapid short-term growth objectives.

 

4. Angel Investors

Similar to venture capital, angel investors are private high net-worth individuals who provide initial loans to help start-ups and entrepreneurs get their businesses started. In exchange, they’ll usually take between 20-50 per cent ownership equity of the company. Given this, effectively negotiating a contract you’re comfortable with is critical.

Only 5 per cent of Canadian companies seeking angel investments are successful, meaning you need to ensure your business is well-suited to what they’re looking for and highly competitive. Developing strong relationships with potential investors and mastering your business pitch is important for this too.

Many Canadian angel investors work with the National Angel Capital Organization (NACO), which partners with other organizations to create opportunities to meet potential investors.

 

5. Business incubators

There are business incubators located across Canada, like Invest Ottawa, NEXT Canada and Pacific Technology Ventures dedicated to helping connect start-ups and entrepreneurs with resources to establish their businesses.

In addition to connecting businesses with funding opportunities and potential investors, incubators often provide mentorship, physical resources, networking opportunities and more to help them through their early days. Being part of a business incubator program will connect you to resources and opportunities you otherwise may not be able to access.

 

6. Small Business Enterprise Centres (SBECs)

Small Business Enterprise Centres (SBECs) are government-funded accelerator hubs that, similar to incubators, provide start-ups with resources varying from support for developing business plans, internet access, and workshops, to guidance on preparing legal documents. They can also help connect businesses with small business grants and other viable funding opportunities.

There are currently 50+ SBECs located across Ontario. Their goal is to foster innovation and business development across the province.

 

7. Pitch competitions

Pitch competitions are exactly what they sound like. They’re a way to secure venture capital and get in front of potential investors by tactfully presenting your business plan in a competitive format. When you’re pitching, you’ll be going up against several other businesses also looking for funding. These are the types of investments you see Arlene Dickinson and Kevin O’Leary making on Dragon’s Den.

Just like you’d see on the show, investors want to see how your business is unique, primed to grow and how their investment in your business would make them more money.

Your pitch needs to be concise, backed with numbers and intriguing. Startup Global is a program involving pitch competition that helps get Canadian businesses in front of investors worldwide.

 

8. Government grants and subsidies

There are countless funding opportunities from federal and provincial government agencies specific to various goals and industries.

These are competitive processes that usually require a time-consuming application process along with some form of matching their funding if granted. Applications require a concrete business and financial plan to demonstrate the feasibility of the business and ROI for the government.

Applying for Canadian small business grants and other government funding requires a lot of administrative and writing time along with granular financial planning to create an effective application. Government agencies are also looking to see how the success of your business will support their larger mandates.

Seek opportunities where the criteria strongly align with your business. There are also funding opportunities specific to supporting start-ups in certain regions, like grants for growth and innovation in Quebec, and supporting minority-owned businesses, including the Black Entrepreneurship Program and Women Entrepreneurship Strategy.

 

9. Bank loans

Bank loans are the most common approach to funding a new business. Getting a business loan from a bank requires good credit history, proof of revenue and a feasible business plan.

Organizations like BDC have various loan options supporting Canadian start-ups at various stages, including those less than a year old and between 1 – 2 years old, which typically have a harder time securing loans.

Banks usually aren’t willing to lend as much money to young companies given the risk and will want to see what other funding opportunities you’re pursuing so you can pay them back.

 


 

Now you should have a high-level understanding of what kind of opportunities are out there. Your next step is to think about what type of funding best suits your business idea.

Are you comfortable asking friends or family for money? Is your business idea scalable enough that it would be attractive to venture capitalists? Do you have enough revenue to prove the concept works?

Have any more questions about funding your business that you’d like answered in a future blog article? Let us know on our contact page.

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Valerie Boucher

Valerie Boucher

Valerie’s a content writer with a background in communications for startups and agencies. She is passionate about helping organizations tell their stories.

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