5 great choices for small business funding
If you’re an entrepreneur who is starting, scaling or expanding a business, you’re likely well-tuned with the ongoing need for working capital. Fortunately, you have a surprising number of options that you might not have considered yet.
While it’s worth seeking advice from your ACU financial advisor, here are five of the most common options for getting funds to start and grow a small business in Manitoba, along with their pros and cons:
Like the name suggests, bootstrapping means you use your own money to build a company, whether that’s your personal savings or cash from your first sales.
However, that doesn’t mean you have to spend your entire life savings. You could sell some assets or even pre-sell products and services to fund the development of your business. For some, it might mean working a part-time job while you slowly build up business, fuelling growth from your first sales.
The pros? It means you avoid borrowing money and going into debt or giving up part-ownership of your company. If this is a business you want to keep in the family, bootstrapping is the way to go, since you maintain complete control.
The cons? Bootstrapping does require a certain level of risk. You’ll work hard and will need to hustle—with little to no outside support. If you want to scale fast, or benefit from the expertise of industry experts, this may not be the option for you.
2. Small business loans
Some new business owners can get family loans. But while the “Bank of Mom and Dad” may be the only ‘bank’ on the planet that provides interest-free funds at any age, it may also come with a lot of unsolicited advice.
If you need more capital, a small business loan is a common way to fund a business. Keep in mind that if you’re just starting out, you won’t have a credit history or collateral, so you represent a higher risk to lenders. That means a loan could be difficult to get from traditional banks, with a long application process of weeks or even months.
While online lenders have a much faster approval rate and more flexible options, they tend to have higher interest rates and tighter payment terms.
Credit unions usually offer more flexibility for smaller businesses, so this could be a good option for you to explore. Dan Kelly, President and CEO of the Canadian Federation of Independent Business (CFIB), advises that, “members tell us that a credit union lending manager is far more likely to take the time to understand their business and consider their track record, rather than just plugging the numbers into a Bay Street-determined formula.”
No matter where you get your small business loan, make sure you understand the terms and conditions before signing on the dotted line.
3. Grants and subsidies
Grants aren’t just for students. Several government agencies offer grants, subsidies and loans for small businesses. Some, however, require you to match the funds.
The Government of Canada offers a number of grants, subsidies and loans for start-ups based within the country. There’s also the Futurpreneur Canada entrepreneurship program, along with programs specific to Black and Indigenous entrepreneurs.
For these programs, you may not be required to provide payments like a typical loan, so this allows you to take more risks, and may even help attract investors (being a grant recipient could be a good promotional topic).
On the con side, grants often have specific criteria—so specific that it may be hard to qualify. Maybe you’re too new, maybe you’ve been in business too long, or maybe your company is in the wrong industry. And there may be strings attached, so read the fine print, or you may be forced to pay back the grant unexpectedly. Plus, with federal programs, expect to do a lot of paperwork and wait a longer time before hearing back.
4. Angel investors
If you’re willing to give up some equity in your business, consider an angel investor—someone who puts their own money into early-stage businesses (think: Dragons’ Den). First, though, you’ll need to find an angel.
Fortunately, there are plenty of options that don’t require a pitch on national television. For example, there is AngelList, which connects investors with start-ups, and offers entrepreneurs three main ways to get started. Canada’s National Angel Capital Organization, or NACO, is a directory of 4,000-plus Canadian angels and 40 angel groups. Angel Capital Association, or ACA, is another option with 14,000-plus angels and 275 angel groups/accredited platforms from around the world. And the Canadian Investment Network is like an online dating platform, except it matches entrepreneurs with angel investors.
The pros? If you’re just starting out, an angel investor comes with invaluable industry experience and connections you’d never otherwise have access to (not to mention cash flow). This can allow you to scale your business relatively quickly.
But angels do expect a return on their investment—and a good return, at that. You must also be willing to give up part-ownership of your business. Keep in mind, angel investors are typically looking to invest in high-growth start-ups, like tech—not a family restaurant or fashion boutique.
With incubators, you share the same premises as your —along with on-site resources, such as technology and possibly even marketing and media coverage—with other start-ups. The ‘incubation’ can last up to two years, at which point you leave the nest and spread your wings.
Business incubators typically focus on high-tech sectors such as information technology, industrial technology and biotechnology. Manitoba Technology Accelerator (MTA) is one example, which focuses on “helping disruptive technologies reach early customers and then scaling the business.”
Other incubators will focus on local economic development such as job creation or hosting/sharing services, so it’s worth exploring the options. MaRS, an innovation hub in Toronto, can point you to various incubators across Canada.
If your business model is suited to incubation, there are a lot of pros to this approach. For one, it’s a supportive environment with like-minded entrepreneurs. It may also inspire new ideas or even lead to new alliances or partnerships. And you’ll have access to the latest and greatest in technology, without any up-front costs.
But make sure the incubator is the right fit in terms of culture or it could be a very long two years. Also, incubators aren’t a charity—they’re run like a business. The application process can be extensive and the incubator, in a sense, will be your boss, so make sure your interests are aligned.
If you’re in business, we’re here to help. ACU’s Community Financial Centre and Business Financial Centre can provide advice and strategic guidance to help you find the right funding and plan a path for the years ahead. Reach out to your Account Manager or book an appointment today.
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