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Sources of Micro Funding for Starting a Canadian Small Business

A young mother who saw the need for a children’s consignment store. A man who dreamed of having his own food truck business. These are just two examples of people whose skills and business ideas would have been wasted without the startup funding that microfinance programs provide.

When we think of microfinance, we tend to think of the developing world. But the concept of providing funding and financial services to people who would otherwise have limited or no access to them is alive and well in Canada, too. This is good news for prospective entrepreneurs looking for startup money.

How Much Do You Need?

Fifty-eight percent of Canada’s small business owners started out with less than $5,000, according to a study of entrepreneurship in Canada by Intuit Canada. For one-person shops, the study found that that number is even higher: 77% reported starting with less than $5,000.

But that $5,000 can be as difficult as trying to borrow $5 million if you’re a person with poor credit and no collateral. Fortunately, the Canadian government, credit unions, and community groups have developed programs that offer microcredit (small business funding of under $20,000) to people who would have difficulty getting a traditional business funding.

Here are microfunding sources you may be able to tap into for starting your Canadian small business:

Who Offers Microfinance Programs?

Many microfinance programs in Canada are location based—you have to be living in a particular region to qualify. Check this list to see what micro funding are available to start (and sometimes to expand) a business where you live.

Contact Sharpshooter Funding to find out what type of funding you qualify for.

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Understanding Microfinance

Understanding Microfinance

Microfinance services are provided to unemployed or low-income individuals because most of those trapped in poverty, or who have limited financial resources, do not have enough income to do business with traditional financial institutions. Despite being excluded from banking services, however, those who live on as little as $2 a day do attempt to save, borrow, acquire credit or insurance, and they do make payments on their debt. Thus, many poor people typically look to family, friends, and even funding sharks (who often charge exorbitant cost of working capitals) for help.

Microfinance allows people to take on reasonable small business funding safely, and in a manner that is consistent with ethical funding practices. Although they exist all around the world, the majority of microfinancing operations occur in developing nations, such as Uganda, Indonesia, Serbia, and Honduras. Many microfinance institutions focus on helping women in particular.

How Microfinance Works

Microfinancing organizations support a large number of activities that range from providing the basics—like bank checking and savings accounts—to startup capital for small business entrepreneurs and educational programs that teach the principles of investing. These programs can focus on such skills as bookkeeping, cash-flow management, and technical or professional skills, like accounting. Unlike typical financing situations, in which the funder is primarily concerned with the borrower having enough collateral to cover the funding, many microfinance organizations focus on helping entrepreneurs succeed.

In many instances, people seeking help from microfinance organizations are first required to take a basic money-management class. Lessons cover understanding cost of working capitals, the concept of cash flow, how financing agreements and savings accounts work, how to budget, and how to manage debt.

Once educated, customers may apply for funding. Just as one would find at a traditional bank, a funding officer helps borrowers with applications, oversees the funding process, and approves funding. The typical funding, sometimes as little as $100, may not seem like much to some people in the developed world, but for many impoverished people, this figure often is enough to start a business or engage in other profitable activities.

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