Beyond Grants: The Canadian Business Funding Universe

Grants are wonderful, for some important reasons:

  • Grants are free money that doesn’t need to be paid back
  • Grants support activities, audiences, industries, and regions that might otherwise not get funded
  • Grant programs can be reliable, year-after-year sources of funding for business
  • Grants can sometimes be “stacked”, which allows businesses to get even more money

But grants are just one type of funding that can be used to start and grow a business!

There are Many, Many Other Types of Business Funding Available

There are literally dozens of other types of funding for Canadian businesses besides grants, and in this chapter we cover 26 distinct funding categories (besides grants) that you might be able to access to start a new business or grow your existing business. 

You can think of all the types of business funding as a “universe”, grouped into four “galaxies” (apologies – we were desperate for a metaphor):

  • Self-Funding (aka Bootstrapping a Business)
  • Free Funding (Grants & More)
  • Debt Funding (Business Loans & Other Types of Credit)
  • Equity Funding (Selling a Stake in Your Business)

Canadian Business Funding Universe: 27 Distinct Types of Funding for Entrepreneurs

In the following sections we briefly define each type of funding:

1. Self-Funding (aka Bootstrapping a Business)

Self-funding, or bootstrapping, a business involves paying for your business as you go – in other words, you’re not borrowing money or taking on investors.

Here are the main ways you can bootstrap a business:

  • Savings: Using personal savings to fund a business.
  • Retirement accounts: Using funds from a registered retirement savings plan (RRSP) or a tax-free savings account (TFSA) to fund a business.
  • Personal assets: Selling personal assets such as a house or car to fund a business.
  • “3Fs” (family, friends, and fools): Borrowing money from family, friends, or individuals who are willing to invest in your business.
  • Side hustles: Earning additional income through a part-time job or gig to fund a business.
  • Barter services: Trading goods or services with other businesses to fund a business.

2. Free Funding (Grants & More)

Free funding is just as it sounds: you get free money for your business, with no obligation to pay it back.

What’s the catch? Free money programs, such as government grants, are sometimes hard to find, and tend to be very competitive – because it’s free money!

Here are the main types of free money programs for businesses:

  • Grants. Grants in Canada are typically provided by the federal and provincial governments. As we’ve already discussed, there are grants available for many business activities, audiences, industries, and regions. 
  • Donation crowdfunding: Raising funds from a large number of people through an online platform in exchange for a reward or product.
  • Wage subsidies: Government programs that provide financial assistance to businesses to hire and train new employees.
  • Tax incentives (rebates, refunds, and credits): Government programs that provide tax breaks or refunds for certain business activities or investments.
  • Rebates: Cashback incentives that businesses can receive for purchasing certain products or services.
  • Business plan competitions & pitch contests: Competitions where entrepreneurs pitch their business ideas to a panel of judges for a chance to win funding or other resources.
  • Incubators: Programs that provide resources and support to start-ups in their early stages of development.

3. Debt Funding (Business Loans & Other Types of Credit)

Debt funding (also called debt financing) involves borrowing money for your business through one of these types of products:

  • Loans (government; bank; alternative lenders): Borrowing money from a government agency, bank, or other financial institution with a set repayment schedule and interest rate.
  • Lines of credit: A flexible loan that allows businesses to borrow up to a certain amount of money as needed.
  • Credit cards: A revolving line of credit that businesses can use to make purchases or pay bills.
  • Debt crowdfunding: Borrowing money from a large number of people through an online platform with a set repayment schedule and interest rate.
  • Equipment financing: Accessing credit programs that are available specifically to purchase or lease equipment.
  • Merchant cash advance: A type of financing where a lender provides a lump sum payment to a business in exchange for a percentage of the business’s future sales.
  • Purchase order financing: A lender provides funds to a business to pay for the costs associated with fulfilling a purchase order.
  • Invoice financing & factoring: Invoice financing involves borrowing money against unpaid customer invoices; invoice factoring is the process of selling unpaid customer invoices to a third-party at a discount in exchange for immediate cash.
  • SR&ED financing: Financing that provides cash flow to businesses that are waiting for their SR&ED tax credits to be processed by the government.

4. Equity Funding (Selling a Stake in Your Business)

Equity funding (aka equity financing) involves selling a stake in your business.

The obvious downside of equity financing is that you don’t retain full ownership of your business (and you might have to listen to your investors!). The obvious upside is that you get an injection of money that you don’t have to pay back, as you would with debt financing.

Here are the main types of equity financing in Canada:

  • Incubators. We’ve already discussed incubators in the “Free Funding” section, but they’re included here again because many incubators also provide equity investments for companies that are accepted into their programs.
  • Accelerators. As with incubators, many accelerator programs have an equity component, in which investors will take an equity stake in a rapidly-growing business.
  • Angel investors: High net worth individuals who invest their own money in start-ups or early-stage businesses in exchange for an ownership stake.
  • Venture capitalists: Professional investors who manage funds that are invested in start-ups or early-stage businesses in exchange for an ownership stake.
  • Equity crowdfunding: Raising funds from a large number of people through an online platform in exchange for an ownership stake in the business.

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