When preparing to start a small business, no matter how good your idea is, it’s going to take startup money. Nearly all businesses have at least some startup costs, and there often are significant costs to keep it running in the future.

Maybe you’re lucky, and you have a huge source of funding at your disposal. More than likely, though, you’re in a spot where you will need help from someone else.

Fortunately, you have multiple options to find the funding your business needs when starting a business in Ontario. Now, we’re not guaranteeing that you will qualify for all of it. You may have to look around quite a bit to find all of the money you need, but that’s not necessarily a bad thing.

Having multiple sources of funding give you a better chance of success. If one source of funding falls through, you will not be bankrupt before you’ve barely had a chance to start working. Multiple sources keep you afloat when one source disappears.

In this article we cover the most important things to understand about how to get funding for a small business in Ontario.

Types of Funding for Small Businesses in Ontario

There are multiple kinds of funding to help you start your small business or to keep it running, some of which may seem obvious and some which may seem strange. However, when you’re running a small business in the early days, nearly any sources of funding are welcome.

Personal Funding

When starting a small business, it is common to find some of the funding you need in your own personal bank account.


Friends and family also may want to invest in your business or to provide you a monetary gift that you can apply to the business.


Should your business hit a snag regarding the amount of income coming in at any point, dipping into your personal finances to cover a gap is a possibility too.

Venture Capitalists

Some people choose to invest in another person’s startup and small businesses with the idea of turning a profit on their investment money. You might think of venture capitalists as being more interested in tech startups, and you’d be right a lot of the time.


However, a variety of venture capitalists exist who are looking for non-tech businesses too.


If you need a sudden infusion of funding for growth, venture capitalists can help.

The downside to seeking a venture capitalist is that you will give up some of the control of your business. The venture capitalist receives a position in the company in exchange for the investment, and this means the investor may have suggestions on how to run the business or whether to sell to a larger company down the road.

Angel Investors

As a better option for small businesses, investors called “angels” may be better for you. Angels are willing to invest smaller amounts, and they often don’t demand as much control over your operations. They also may have experience in your line of business, as the angels often are looking for a way to stay involved after retirement.


Raising money through crowdfunding websites would be a similar method to using angel investors, just with far more people donating far smaller individual amounts.


Another option is an incubator, which is an existing business that gives new small business owners the ability to learn more about the industry by working in a limited collaboration with them. An incubator occasionally gives funding to a startup. Some incubators even provide workspace to the startup.

Government Grants

Grants from either the federal or provincial government are a great source of funding for Canadian startups. You don’t have to pay back grants, and the government isn’t going to show up at your door and give you suggestions on how to run the business. (Governmental officials may show up if you forget to pay your taxes, though.)


Because they are so great, grants can be tough to obtain. A lot of competition exists, and you have to fill out quite a bit of paperwork (or web forms) to qualify for a chance.

Loans

Private loans are available from banks. Understand that private banking business loan officers will expect you to bring some sort of other money to the loan application process. In other words, to qualify for the loan, you may need to show you have a certain amount of money dedicated to the business. The loan would help cover the additional money that’s needed.


Government backed loans are available too.

Credit Cards

If you strike out with other means of financing your business, you could try funding it through carrying credit card balances.


This is a questionable method of funding a small business, though, as credit card interest rates are much higher than with other kinds of loans.


Really, the smartest time to fund something for the business with a credit card is for a short-term borrowing situation, and when you’re certain you’ll have the funds to pay it off quickly.

Lines of Credit

For short-term financing needs, a line of credit from a private bank may be appropriate for your small business. This is an ongoing loan with a pre-set top limit that allows you to borrow against it as needed and pay it back whenever you want (as long as you make minimum payments on time).


Think of it like a credit card, but it should have a lower interest rate than the credit card.


You may have to use some collateral or personal property, such as a vehicle, a home, or some business equipment, to receive a line of credit from the bank. Understand that you will put your personal property at risk if the business fails and you default on the line of credit.


Some banks will offer unsecured lines of credit (with no collateral required), but your interest rates will be closer to what a credit card offers.

Where to Find Small Business Funding

Now that we’ve given you several potential sources of funding for your small business, you may be wondering, where can I find these sources of funding?

  • Angel investors: In Canada, the NACO, or National Angel Capital Organization, may be able to help you track down angel investors for your particular small business area.
  • Business incubators: If you’re looking for incubators in Ontario, start with universities, which have multiple programs available to startups with interesting business ideas, including the University of Toronto programs.
  • Crowdfunding: The most popular crowdfunding sources in Canada for small businesses include Crowdfund, Crowdfunder, GoFundMe, Indiegogo, and Kickstarter.
  • Governmental loans: There are multiple loans at the federal level and at the provincial level in Ontario with government involvement.
  • Governmental grants: There are a number of federal grants aimed at startups, as well as for helping your business achieve a certain goal, such as to keep employees on the payroll in tough times. With provincial Ontario grants, you’ll often have a better chance if your business meets certain criteria, such as minority ownership. Some provincial grants give you an amount of money that matches your personal investment.
  • Private loans: Royal Bank of Canada and Business Development Bank of Canada both offer startup business loans, as do many other private banks. You will need a well-researched business plan to convince a private bank about your credit worthiness and about the prospects of your business. The federal government also has tips for finding small business loans.
  • Venture capitalists: The Canadian Venture Capital Private Equity Association can help small businesses learn more about finding venture capitalists interested in providing funding.

Tips for Applying for Funding

No matter what kind of funding you’re attempting to receive for starting a business or for funding your existing small business, you need to put together a business plan or loan application that contains accurate information and that paints your business in the best light.


A poorly researched or sloppy business plan will leave investors unsure about whether your business deserves the financing. On the flip side, if you have a detailed, polished plan, you may convince a lender or an investor that you are well-prepared and ready to succeed as an entrepreneur.


Here are some tips for successfully applying for small business funding.

  • Be ready with a detailed business plan. Those preparing to invest in your business are not going to understand the business as well as you do. They are not going to understand your vision for the business either. The business plan lets you show them these things, ensuring everyone is on the same page. If you’d like some guidance with your business plan, BDC has a free template you can use.
  • Figure out how much you need. Very few small business investors have a desire to hand you a blank check for your business financing. The investors want to know how much you actually need and the plans for the money. Having this information available, perhaps even as part of your business plan, can improve your chances of a successful experience.
  • Calculate your cash flow projections. If you’re receiving a loan, the lender wants to be certain you will have the cash flow to make the required payments. Make sure you have records that show your current cash flow for an existing business, as well as the cash flow you expect to receive going forward (with supporting documentation).
  • Maintain transparency. Make sure your documents are in order and are filled out correctly. Some documents you may have to provide include tax returns, business financial statements, your business’ structural documents, copies of insurance policies, licenses the business holds, and a current balance sheet. If you are missing certain key documents, or if the information on the documents is incomplete, an investor or lender may question whether you’re being completely honest about your business prospects.
  • Understand what you’re seeking. To improve your chances of receiving the funding you want, be sure you have an understanding of the funding for which you’re applying. If you apply for a type of funding that isn’t really appropriate for your situation, you may struggle to receive a favorable result.
  • Double check your public information. Look at your website and social media presence with a fresh eye before beginning the process of seeking funding. Lenders and investors are going to take a look at any information that’s available online, either to prepare for the meeting or to verify what you told them during the meeting. An error-filled online presence is not going to give the potential investor confidence.
  • Determine if you need life insurance. Some lenders will want you to have a life insurance policy that would cover the entire amount of the loan, should something horrible happen to you. This can be a requirement for a sole proprietorship seeking business funding, for example. You may want to research some costs for insurance before starting the process.

Importance of Having Good Credit to Obtain Financing

When you’re asking a person or an entity to give you money for your small business, you have to create a level of trust. In the world of finance, whether it’s your personal finances or your small business finances, you deliver that trust through your credit score.


If you’re running a small business, potential investors and bank loan officers are going to look closely at your personal credit score to determine your creditworthiness, as well as any financial history that your small business has accumulated, including your business credit score.


Here are some tips for maintaining a strong credit history for your small business.

  • Apply for one loan at a time. If you have multiple loan applications open at the same time, this could create some red flags on your small business credit score. A lender may think you’re trying to pick up several loans at the same time, creating an undesirable level of debt.
  • Pay your bills on time. Just as with your personal credit scores, late payments can create negative marks on your credit report for the business. Pay your bills on time to have a positive credit impact.
  • Know what collateral you have available. If you have personal property or property that belongs to the business that you can put up as collateral for a small business loan, this can give you a better chance of receiving approval, as well as receiving a more favorable interest rate, overcoming a shaky credit score.
  • Try to separate your financial worlds. If at all possible, you will want to have a separate business financial picture and a separate personal financial picture. Although investors and lenders will consider your personal financial history, they really want to see the credit score and financial performance of the business. If the two are intertwined, it may be difficult for the investor to picture the performance of the business alone.

About the author 

Maurice

Maurice (Moe) Muise learned the ins-and-outs of government while an employee of the Government of Canada in Ottawa for 10 years. His current focus is helping small businesses in Ontario to identify and maximize government grants to grow their business.
Click here to learn more about Moe's background and how he can help your business.

Tags

You may also like

Research and Development Grants for Ontario Businesses (2021): 23 Government Incentives to Boost Your R&D

Research and Development Grants for Ontario Businesses (2021): 23 Government Incentives to Boost Your R&D
Success message!
Warning message!
Error message!