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.
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.
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.
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.
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.
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.
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?
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.
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.
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.