By Trevor Shorte
No matter what kind of business you have there is one universal truth that you will have to accept. Everything that you need to do to create a viable business requires money. This leaves you with two choices when it comes to funding your business… do it yourself or get money from outside sources.
The popularity of television shows like Dragon’s Den and Shark Tank has thousands of aspiring entrepreneurs lining up for hours just to get an opportunity to do a short pitch for their producers. And that’s just the process you go through BEFORE you can even get in front of any Dragons or Sharks! This just further underscores the need for sources of funding for small businesses.
So, what do you need to know about getting funding for your business? If you did a Google search for Small Business funding, you would get over 203 million search results. It’s no wonder that people can get easily confused and overwhelmed with the amount of information that is available. There is a myriad of ways for you to find money for your business… far too many to detail in this space. Here’s a look at a four of the most common ones.
Where can you go to get money?
If you are just getting started on your entrepreneurial journey, it’s more than likely that you started out by spending your own money (AKA bootstrapping) trying to get your business off the ground. When you’re at this stage, your financial requirements are typically lower but as you begin to grow your business, your financial needs will start change so you should start looking for an alternative source of funding.
Friends and Family – I sometimes refer to this as the Bank of Mom and Dad. Friends and family are usually your biggest supporters and it’s not uncommon for them to be early benefactors for your business. One thing to keep in mind though is the fact that money can quickly sour personal and family relationships so make sure that you have your agreement in writing. Having a formal agreement drawn up that details what the financial arrangement is, what the repayment schedule looks like, or if they get equity in the company for their investment can go a long way in keeping money from fracturing those relationships.
Small Business Loans and Grants from Government Programs – The Federal government offers numerous programs and loans for entrepreneurs and small businesses with some specifically targeted at marginalized groups such as women, or BIPOC members of the community. On the Government of Canada website, you can just answer a few questions about your business and financial situation and their Business Benefits Finder will match you up with programs that you can sign up for to get either a grant or a loan. The federal government also owns the Business Development Canada bank which is geared towards providing funds to entrepreneurs to either build or grow their business. They offer competitive interest rates, and you can apply online to start the process.
Crowdfunding – This is a fairly popular way for entrepreneurs to raise money for their ventures. You create your pitch on a platform such as Kickstarter or Indigogo, and if people want to be involved, they will commit money to support your business. The one positive thing about crowdfunding platforms is that they are really good place for validating your business idea. If nobody invests in your idea, you might want to head back to the drawing board and change it up. Not all businesses are good candidates for this option though as it is better suited for those that offer a physical product that can be used as incentives for potential investors.
Venture Capital Companies (early Stage funders) – The sole purpose of Venture Capitalists is to find businesses that they can invest in. They like to work with companies that have a high growth potential that will fuel their profits. The one caveat is that typically they are more interested in companies if they believe that they can get 10X their investment when they are ready to exit. This seriously narrows their focus so it’s important to know your company’s valuation and that your revenue projections are on point if you want to get their attention.
A good resource to find information on various programs available for startups is TorontoStarts. We fully support the work that they do for the startup community and regularly volunteer our time to their membership base. They have compiled a massive library of financial resources available for startups and small businesses which you can find here.
These are just a handful of ways that you can get money to run your business so just remember, whatever method you choose, do your homework. There are pros and cons to every option, so you will need to do your research to find the best option for you and your business.
If you need help in determining if your business is ready to take the next step and get funding, we offer Coaching packages for entrepreneurs where you can work one on one with us to figure out a course of action for you and your business. You can book a free 20-minute consultation with us here to see what we’re all about and decide if that’s right for you!