There are many reasons for a small business owner to seek funding, either to maintain or grow their business. However, if you are on this page, the chances are that you are already looking for external ways to receive funding.
Below is a list of all the ways to receive funding for your small business, in no particular order.
1. Conventional / Traditional Borrowing from a Bank
No surprise here, the banks in Canada provide small business loans. When you apply for the loan, your credit score is checked. Also, they’ll likely ask you for upfront collateral, usually, assets that you own (paid in full) or being financed (paying for monthly). These assets include any property you own such as any real estate or equipment. The application process can be lengthy at times because determining the market value of your upfront collateral can take some time.. For this reason, be sure to submit an application at least a month before you need the money. You can check out CIBC’s Small Business Loans page to learn more about this type of business funding.
Just like your personal bank accounts, your business accounts can also have an overdraft. This is a must-have for all businesses because it protects your chequing account against unexpected charges made on your account. It can also prevent NSF fees and the credit score hits that come with them. It is also a one-time application and keep-forever thing; you only pay fees and interest when you use it. Here’s the CIBC Small Business Overdraft page for you to learn more about this offer.
Line of Credit
Line of credits usually feature lower-interest rates and you pay only when you use the money. This is by far the most convenient, but often hardest way to obtain funding capital for your business. Once approved, the funds are available instantly for you to use usually via a check, bank transfer or credit card. The best part is, you can pay the money back as much, or as often as you wish. However, receiving the funds after you’ve applied can take an upwards of 60 days. A suitable combination of repayment terms, amortization period, and interest rates determine which kind of line of credit you would need to fit your immediate and long-term business needs. A good place to learn the details would be National Bank of Canada’s line of credit page. By referring to this page, you can see how a line of credit can fund your business.
2. Borrowing from Private Lenders
Family and Friends
Believe it or not, asking your friends and family for money remains one of the easiest ways to privately fund a business. They do not ask for a credit check, charge high-interest rates and have flexible payment terms. Plus, you already have a good rapport with them.
In fact, some of today’s largest corporations were first funded by friends and families. Companies such as Facebook, Google, Whole Foods, Dyson, and Quickbooks all have founders that borrowed money from their friends and family. If this is something you would like to consider, then check out Forbe’s post covering 5 tips for asking friends and family for business funding.
Private business funding institutes
There are many private funding institutions that fund small businesses in Canada. They are sometimes called “alternative” or “specialized” lenders. They differ from traditional banks in three key ways:
- Risk Assessment
- Time to receive funding
- Repayment Options
Traditional lenders’ risk assessment models are based on personal credit and personal assets information for business lending decisions. No matter how hard you try to convince the bank that your credit score is not indicative of your business ethics or success, some conditions are absolute deal breakers. Private funding prevails in this sense, as each private lender has a unique assessment model that uses different data sources such as business transaction and industry information, in addition to personal information to assess your risk.
Additionally, if you are in immediate need of a loan, they can get you the funding in a matter of day(s), and not weeks. Just be prepared with all the needed documents and information.
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3. Crowdfunding your business
You can now directly reach out to the masses and pitch your new product idea, and if they like it, they will each pay a small individual fee to fund the product for you. This is made possible by websites such as Kickstarter and IndieGoGo. In exchange, the masses expect the product first and at a cheaper price than for a public launch.
If you have a compelling product and have some money for marketing for that product, consider crowdfunding your product. There is no rule that says you HAVE to be a startup to get crowdfunded. Even if you are an established business, there’s no harm in trying. However, this is probably the slowest and least predictable way of getting business funding for your next project. However, with the right idea, it can also be the fastest and provide you with more than enough funds to get started. It’s also a great way to get free feedback for how successful your idea could be.