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Small business funding options

July 14, 2016   ·   0 Comments

One of the most frequently asked questions in the Small Business Enterprise Centre (SBEC) is “where can I get funding to help start (or grow) my business?”  Finding financial resources is probably the biggest challenge to starting and operating a small business and entrepreneurs are wise to investigate all avenues of funding that will help reduce debt.

Traditional banks are usually top-of-mind when looking for financial backing.  Financial institutions provide commercial loans to businesses for buying long-term fixed assets such as land, buildings, or equipment, increasing working capital, investing in business expansion, or buying another business.  A local bank is also an excellent source for business advice through its small business advisory services. 

Sometimes, however, a new entrepreneur is unable to get the bank’s approval for a loan and the owner must make an effort to find alternative financing.

Personal assets and private investors

In many cases, the business owner’s personal savings and assets can be used to fund the start-up.  Money in a savings account, stocks, mutual funds, bonds or other investments can be liquidated in order to finance the new operation.  Entrepreneurs may also opt to sell or refinance personal property to free up some capital to make their business a reality. 

Sometimes family and friends are available to assist the start-up by becoming investors or short-term lenders. Often referred to as “love money”, this kind of support is usually given to entrepreneurs who have proven their responsibility to close family and friends over the years, but who fail to meet the capital requirements that financial institutions look for. Other private investors, known as “Angel Investors” may see the potential growth of a business and agree to take on the risk of financing it. CBC’s popular Dragons’ Den program is an example of this type of alternative funding. Entrepreneurs in the Dufferin area can find out more about accessing angel money by contacting the Georgian Angel Network at http://georgianangelnet.ca.

If purchasing an existing business, the buyer may be able to negotiate a “vendor take back” which can be beneficial for both parties. The seller receives regular payments from the new owner’s profits and the buyer has an investor that is keenly interested in the business’s ongoing success. A vendor take back can also save time and costs associated with getting traditional financing approved as the entrepreneur is dealing directly with the seller.

Government grants and financing

A grant is money that does not need to be paid back as long as the conditions of the grant are met.  Business grants are scarce, but they do exist for entrepreneurs that meet eligibility criteria. There are grant funding programs for sector specific businesses such as agriculture, arts, innovation, media, social enterprise, technology, and tourism among others. Regional programs such as the Southwestern Ontario Development Fund and the Eastern Ontario Development Fund provide special incentive grants to promote business growth in a specific geographic area. Young Entrepreneurs can access business grants through a variety of initiatives that include the provincial programs Starter Company and Summer Company. Some small businesses can qualify for grants for certain activities such as employee training, exporting, introducing a new technology, and commercializing a product. 

When researching grants, the business owner should thoroughly examine the legitimacy and eligibility criteria involved.  A comprehensive list of government grants can be found at www.canadabusiness.ca.

The government provides other sources of financial assistance for small businesses.  Special financial programs including loan guarantees, tax credits, and wage subsidies can assist. A loan guarantee can make it easier for an entrepreneur to attract a conventional creditor such as a bank because the loan is backed by government funding and the lender’s risk is reduced. Examples of loan guarantee programs include the Canada Small Business Financing Program, Canadian Agricultural Loans Act Program and the Community Futures Development Corporation (CFDC).  The Centre for Business and Economic Development, located in Collingwood, is the CFDC that services Dufferin County entrepreneurs. Their financing is intended for business owners that have been declined by a bank or who require top-up to the financing provided by a bank. 

Tax credits should also be investigated by the entrepreneur to make sure all possible credits are claimed. If the business has employees, the owner should investigate any potential of wage subsidy.  Information about a variety of business tax credits and wage subsidies can be found at www.canadabusiness.ca.   

Crowdfunding

An emerging trend in financing for small business is crowdfunding.  Crowdfunding involves collecting financial contributions from many strangers not usually connected to the financial sector and it offers an alternative to traditional forms of business financing.  Crowdfunding is usually done over the Internet through crowdfunding platforms and funding portals. Participating in online communities dedicated to this type of fundraising can help the entrepreneur collect donations, offer rewards and take pre-orders. The National Crowd Funding Association found online at www.ndfacanada.org helps a fund-searcher to sort through the various platforms and programs available to entrepreneurs and to see if crowdfunding is right for them.

Funding a small business is no small task.  With persistence and hard work, entrepreneurs can find suitable support through a wide variety of funding avenues. The SBEC office is available to help entrepreneurs to seek out the best sources of funding available to them. If you are looking for business support, contact the office at 519-941-0440 Ext. 2270 or email sbec@orangeville.ca.

Ellen Sinclair is the Co-ordinator of the Orangeville & Area Small Business Enterprise Centre. She can be reached at esinclair@orangeville.ca or 519-941-0440 Ext. 2270.

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