Loans
The starting point is to check your local bank or credit union for entrepreneur-friendly loans or micro-financing options. The key to being effective with financing is to separate business from personal. For example, it’s not recommended to take out a personal line of credit to finance your business.
Over the years, more options exist to receive loans for both launching and growing your business. Examples in Canada include Futurpreneur, Business Development Bank of Canada (BDC) and Women’s Enterprise Centre.
Most relevant when:
- Micros loans ($50,000 or less) to help launch your business.
- Growth financing when you are more established, cash flow positive or profitable, and you know how you will continue to grow in a scalable way.
Grants
Grants are the closest thing to free money, but no money comes for free. They’re funding options that typically don’t require you to pay back the money at any time. Examples in Canada include grant programs from the National Research Council (NRC), CanExport, and Innovate BC in British Columbia.
When you look at applying for grants, make sure you look at the reporting requirements, the matching funds requirements, and repayment in the event of a sale of the company. Tools like getgranted.ca are effective places to learn about options.
Most relevant when:
- You’ve been in business for at least one year
- You know you have the matching funds available
- Good for hiring staff and launching new products or into new markets
Tax Credits
Many countries have tax incentives and credit programs for startups and small businesses. In Canada, SR&ED (Scientific Research and Experimental Development) financing – provides financing based on tax credits from the Canadian SR&ED program. The application and reporting process can be somewhat challenging, especially if you lack a dedicated project manager. However, companies like many accounting firms and R&D Partners can help with filing SR&ED paperwork.
Most relevant when:
- You’ve been in business for at least one year
- You have some innovation being developed in your business
Competitions
Often, local universities, government support organizations, and large corporations offer funding or prizes through their innovation departments. Keep an eye out for impact challenges, pitch competitions, and the like when considering this option. Remember that competitions can be distracting to your focus and working on the core business, so choose them wisely based on the relevance to your industry and stage, and the potential lasting brand value they can bring.
Most relevant when:
- Your company is recently launched and you need brand recognition
- When the awards are tied to potential customers or strategic partners
Crowdfunding
Can you believe it? This source of funding DID NOT EXIST 10 years ago! It is forecast that more than $1trillion will be raised via crowdfunding by 2025, allowing companies all over the world to get non-dilutive funding from the public.
Crowdfunding is typically better suited to Business to Consumer (B2C) companies with a large community or user base. It also requires extensive upfront preparation, a budget large enough to sustain a campaign, and strong follow-through. Platforms like Indiegogo have fantastic online resources and best practices that you want to follow closely to increase your probability of success.
Most relevant when:
- You have a B2C product
- You can afford the video and supporting marketing for the campaign
- You have a big enough following on social networks, plus friends and family, to contribute early to the campaign
- You’re confident you can follow through on the promises you make
Revenue
Yes, this seems obvious, but it’s important to reinforce that generating revenue – selling – is often the best form of raising money. It generates cash flow and it proves that the market wants your product and/or service.
Be fearless to try and sell early, even prior to launching with pre-orders, reservations, pop-up stores, and crowdfunding campaigns. You can test marketing messages, brand, pricing, and the product mix too. It’s no surprise that, even if you want to raise money from investors, generating revenue makes your business more attractive to all other sources of funding.
How to Decide Which Option is Best for Funding a Business
Every funding option comes with pros and cons. Your duty as an entrepreneur is to remove all personal biases and consider what’s best for your business given the conditions the business finds itself in.
Another big consideration is your runway and urgency to close. If you have a short runway, tapping into family and friends is typically the fastest way to raise capital. For a mid-range runway, you may be better to tap into loans, grants, and competitions while longer runways afford you the time to leverage crowdfunding and equity fundraising.
