Every small business finds itself looking for small business funding at one point or another. Finding the business start up funding or money to expand your established business can be a tricky, time-consuming process – and you still may not find or secure the small business funding you need.
Here are ten things you need to know about Canadian small business funding that will prevent your funding search from turning into a wild goose chase.
1. The main sources of small business funding are banks and credit unions.
The most popular source of small business funding is the entrepreneurs' own pockets, but traditional sources such as banks and credit unions are next. That makes your own bank a good place to start your search for small business funding, especially as the Canada Small Business Financing Program is delivered locally.
That doesn't mean, however, that getting small business loans in Canada is easy. As part of an SME Financing Study done by Industry Canada, a survey found that traditional small business loan suppliers (such as banks) are becoming ever more conservative in their evaluations of prospective small business loan customers. As always, new businesses are having the hardest time finding the business start up funding they need.
To counteract this trend, you need to spend some time putting together an attractive small business funding proposal. Learn more about how to meet a lender's expectations and increase your chances of securing the small business financing you need in How to Get a Small Business Loan.
2. Small business grants in Canada are few and far between.
There are very few small business grants out there and most of the grants that do exist target specific groups, activities or even areas of the country. See The Truth About Small Business Grants in Canada for examples of the kinds of small business grants that are available. There seem to be more business grants available for businesses related to arts or culture or specific environmental issues.
Also be aware that there are very few pure, no-strings-attached small business grants available in the first place; many Canadian "grant" programs involve matching contributions or subsidies, meaning that you have to put out money to get money. My advice is not to plan on anyone giving you money. Base your plan instead on how you're going to get people to loan you money.
If, however, you want to research whether or not there are any small business grants in Canada that your small business might apply for, 5 Tips for Finding Small Business Grants in Canada will help you launch your search.
3. You have to have a solid business plan.
There is no way around this and no shortcuts; anyone who might seriously consider giving you small business funding will want to see one. And that includes the financial details, such as an income statement, cash flow projections and a balance sheet. (How to put all three of these together is covered in The Financial Plan Section of the Business Plan.)
Fortunately, there is more help for putting together a business plan than ever before. Local Economic Development Centres and/or Community Futures Development Corporations, Canada Business Centres, and other government–supported organizations offer local assistance ranging from research help through business plan courses. Some people find business plan software useful.
And there are many models and how-to articles online. My Business Plan Outline, for instance, will lead you through the process and explain how to research and write each section of the business plan.
4. There has to be something in it for your lender.
And your business plan or pitch has to reflect this. If you're trying to get a small business loan, the 'what's in it for them' is obvious - a percentage rate of return. But some potential investors might actually want to stick their fingers in your pie, demanding an ownership percentage or at least a say in how your business is run.
Angel investors, in particular, often want to play some sort of active role in managing the company. Typically, these types of investors are also looking for higher rates of return than they could realize with more traditional investments.(How to Find an Angel Investor tells how to find prospective angel investors for your company if you're interested.)
When you're putting your small business funding proposal together, know what type of lender you're trying to entice and tailor your business plan accordingly to meet that lender's needs and answer all his or her questions.
5. Be ready to contribute financially.
Assets help, especially assets that lenders will see as collateral. But making your own financial contribution of some sort may be necessary to secure the small business funding you're trying to get. Many government sponsored small business loans and grants demand an applicant contribution, often of a set percentage of the small business funding sought.
Business start up funding is not exempt. Even The Self-Employment Program, as administered in some provinces, calls for applicants to make their own financial contribution to starting a business.
Continue on to the next page to read five more things that you need to know about Canadian small business funding before you start your funding search.