The Different Ways to Fund a Business in Canada

September 9, 2019 1:02 pm Published by Leave your thoughts

Raising capital is perhaps one of the most complex tasks expected from an entrepreneur before they start their business. Not all entrepreneurs have the resources required to run their business before they break-even. The initial costs of procuring raw materials, buying machinery, and paying employees are to be met through the capital invested into the business.

If the initial capital invested in the business isn’t able to fund the operations, the business will sooner or later enter the dreaded abyss of bankruptcy. This is why many businesses close down within two years of their incorporation.

The Canadian market is host to numerous opportunities that an entrepreneur can follow to fund their business. These opportunities give entrepreneurs the chance to raise the capital that is required at the start, and also to take the business out of a liquidity crunch when it strikes.

Knowing just how hard it is to get the job done, here we mention some of the different ways you can fund a business in Canada. Go through these options and choose the one that best appeals to your interests.

Conventional Borrowing from a Bank

The first option you have is to go for the tried and tested method of conventional borrowing from financial institutions such as banks. Bank loans have several pros and cons. Lenders, in this case, might have a stringent qualification process, but that just goes to prove how they entertain prospects that show promise of achieving the ultimate goal in the long run.

Banks offer multiple options when it comes to funding your business through them:

Loan

A bank loan is, without a doubt, the first option that comes into the minds of small business owners who are looking for capital. The process of qualification for a bank loan is stringent and takes into account your credit score, credit worthiness, and the profit-making potential of your business.

Banks will also look to secure their interests after granting a loan, which is why they ask for collaterals upfront. These are assets you own or are financing, and they include equipment, machinery, property, or any intellectual property you own. The approval process is lengthy with banks as they take their  time before approving your case. Most banks will take at least a month to approve your file and send it forward.

Overdraft

Just like the overdraft on your personal bank accounts, you can also avail the option of an overdraft on your business account. An overdraft is a must-have option for businesses when they first start off, because of how it helps them meet sudden expenses at the end of the month. As any business entrepreneur would know, unexpected charges can spring up without a warning.

In such situations, it is advised that you go for a business overdraft. Business overdrafts are easy to avail and don’t carry a lengthy process, but you can avail only a limited amount through them.

Borrowing from Private Lenders

Since banks happen to have a lengthy process for approval, most business owners also run to private lenders for investment. The options you have here include:

Friends and Family

You might find this hard to believe, but friends and family offer a convenient funding option for your business. Most entrepreneurs shy away from mixing their personal links with business finance, but the convenience of this option can be quite luring.

Since you already have a good rapport among your friends and family members, you can easily head to them without any delays whatsoever. Friends and family won’t run lengthy credit checks on you, and they would surely not charge high-interest rates. Additionally, they also happen to provide flexible terms for repayment. You can repay them whenever you want, based on your own flexibility.

If you look at history, you’ll find countless examples of how some of the biggest corporations of today were initially funded by friends and family. The founding members of Google, Facebook, QuickBooks, Dyson, and Whole Foods approached their family members and friends to fund their dreams initially.

Private Business Funding Institutes

Private business funding institutes can be quite helpful if you want to get a small business loan in a jiffy. Private lending institutes don’t have the lengthy delays of banks, and the informality associated with borrowing from friends and family members. They offer the best of both worlds; organized and formal. If you borrow from banks, you have to be aware of the imminent danger of rejection. If you borrow from friends or family, you have to be aware of the fact that they will ask for their money back at any time.

With private lending institutes, you get the perfect mix of both options. You get an organized small business loan or long-term business loan that you can avail in a legalized manner. Additionally, you also benefit from competitive interest rates and quick qualification procedures.

A good lending agency will take you just a little over 24 working hours to approve your loan and transfer the funds to you. No one has the time to wait a month for banks to study and approve your application. Instead, you can easily get the desired cash in hand here. Moreover, most private lending agencies aren’t that stringent with a good credit score. They realize that your credit worthiness isn’t a good assessment of your current standing to repay a loan.

Crowdfunding

If all other options fail, you can head over to either of Kickstarter or IndieGoGo for crowd funding your business. When going for crowdfunding, businesses look for possible capital generation opportunities from the general public. You present your sales pitch and ask the general public to step forward and invest in your business. The results are often what you expect and what is needed for starting your business with the required capital.


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