Before you try to find and secure the small business funding to start or grow your small business, you also need to know:
6. The size and age of your business matters.
I'm sure you know already that new businesses have a harder time finding small business funding than businesses with established track records. But the size of your business matters too in terms of how much your small business funding will cost you.
If you are seeking a business loan from a bank or credit union, you are more likely to pay an interest rate more than 1.5% above the prime rate if you are asking for a small loan amount (under $100,000) or have sales of less than than $500,000 ("Banking Matters", CFIB Research Report, November 2007). The report also says that you are more likely to pay these higher interest rates if you have a business with less than 20 employees and/or less than ten years of business experience.
7. Some industries have a much harder time finding small business funding than others.
You are at a disadvantage if you're looking for small business funding for a business in the retail, service or hospitality sectors, especially if you're looking for business start up funding. I personally think there's nothing wrong with starting such a business, but lenders perceive these businesses to be more of a risk than businesses in other sectors.
Businesses in the financial, insurance, real estate, wholesale and agriculture sectors are least likely to have their small business loan applications rejected ("Banking Matters", CFIB Research Report, November 2007).
8. You are your business from a financial point of view.
Your personal financial history will be carefully scrutinized by any potential lender you approach. You may find that the lender is only willing to give you a personal loan rather than a small business loan or that you are expected to sign a personal loan guarantee.
Worse, any flaws in your personal financial history, such as bad credit or lack of collateral, may knock you out of the running for small business funding entirely. It's important that you take steps to clean up your personal financial record, such as repairing your credit rating, before you try to get small business funding.
There are some small business funds available for those who don't have perfect credit ratings though. If you have no credit history or collateral because of divorce, because you're a new immigrant or because you're young, or if you have a poor credit rating because of repayment issues, your local Community Loan Fund may be willing to give you a small business loan. See Where to Get a Small Business Loan When the Banks Turn You Down.
9. There is small business funding especially for women.
There are more sources of funding earmarked specifically for helping women start and grow small businesses than ever before. If you are a woman looking to start a business or expand an existing small business, small business loans are available - and even the occasional small business grant. Small Business Loans for Women in Canada provides details of small business loans coast to coast that only women can apply for.
10. You don't need a fortune to start a small business.
Just because a business starts out really small doesn't mean it has no shot at becoming a huge success.
Brian Scudamore, for instance, started 1-800-GOT JUNK? with a single used pick up truck when he was a university student in 1989.
Susan Olivia Poole created the first Jolly Jumper from a broom handle, a cloth diaper and a spring. The Jolly Jumper went on to become a world wide seller.
Do you really need as much small business funding as you think you do?
"...the first rule of financing,” says Rick Spence, “is to get by on as little funding as you can because searching for capital can drain valuable time that may be better spent taking care of business" “You Don't Need a Fortune to Start a Business”, Financial Post).
Particularly if you are looking for business start up funding, consider how you might scale back your small business idea or break it into parts so you can get your new business up and running without a large infusion of small business funding.
Keeping the points above in mind will save you time, make your search for small business funding easier and increase your chances of securing the small business funding you're looking for because if you apply these ten points about small business funding to your own funds search, you'll be much better prepared to find lenders who may be interested in financing your business and you'll be better equipped to meet their expectations when you do.
For more about small business funding and where to find small business loans and small business grants in Canada, visit the Small Business Financing section of this website.
