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Do you know what types of financing are available?

Both new and expanding businesses need money to fund their projects. Your business must get funding for each item it requires to operate: working capital, ongoing expenses, tools, equipment, buildings, patents, etc. Once you’ve established your needs, you must determine what sources of funding are available to meet them.

Both new and expanding businesses need money to fund their projects. Your business must get funding for each item it requires to operate: working capital, ongoing expenses, tools, equipment, buildings, patents, etc. Once you've established your needs, you must determine what sources of funding are available to meet them.

Learn about the different types of financing available and choose the one best suited to your projects. You can finance your business through loans, equity and government programs.

Loans

A portion of your business can be financed with loans. These can be used to finance your accounts receivable, inventories and equipment purchases or to buy or improve real property. A variety of loans are available:

  • Lines of credit
  • Credit cards
  • Term loans
  • Other

Equity

Equity financing is provided in part by business principals (owners). Businesses may also approach private investors and investment companies to find the capital they require to grow. Equity can be used by new businesses to fund working capital and start-up costs and by companies in growth stages of development for acquisitions or new market development.

Equity sources

  • Business principals: Principals must provide a portion of the business start-up and operating funds (personal savings, residence, pension funds, RRSPs).
  • Retained earnings: Retained earnings generated by business activity can be reinvested into the company to help finance its growth.
  • Angel investors:
    • Often retired business executives with capital to invest.
    • This type of financing is usually used at the beginning of a company growth phase.
    • Angel investors usually invest in projects they expect will have a high chance of success. They become a business partner and are usually involved in the management and development of the business.
  • Initial public offering (IPO):
    • For companies needing a massive inflow of capital to support their growth.
    • The company issues and sells shares of common stock to the public through securities brokers. The stock can be issued with warrants or options.
    • A prospectus allows prospective investors to learn about business activities and financial statements as well as the securities for sale. In Quebec, the Autorité des marchés financiers oversees what information companies must provide to securityholders in the prospectus.
    • Because of the wide array of legal requirements surrounding securities transactions, the assistance of professionals is required to carry out this complex undertaking.
  • Venture capital:
    • For growth firms whose equity financing needs go beyond the business principals' ability to re-inject funds into the company and whose conventional financing sources are being used to their full extent.
    • Returns are established in proportion to investment risk. It is the prospect of potentially high gain that makes venture capitalists risk possibly losing their entire investment.
    • To make your project attractive to venture capitalists, growth prospects must be realistic and backed up by verifiable facts. Investors will also want to know about medium- and long-term business projects.
    • In return for venture capital, companies give the investors a certain number of shares which investors hope will increase in value. As investor-partners, venture capitalists take an active part in the strategic management of the company.

Government programs

Provincial and federal governments have a variety of programs in place to stimulate entrepreneurship and help businesses succeed.

  • Some programs help businesses obtain debt financing while others award subsidies to help improve company funding. Support can come in the form of tax credits, loan guarantees, subsidies or direct loans to support a particular aspect of the business.
  • Several programs are aimed at specific types of clients, such as SMEs, cooperatives, new economy businesses, non-profit organizations, young people, businesses in remote areas, female entrepreneurs, etc. Other programs support specific types of business activities such as research and development, exportation or marketing efforts.

Visit your federal and provincial government websites to find out what options are available to you.

There is a source of financing for every business financing need, so get researching!

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