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Financing Your Small Businesses

Introduction

One of the most important steps in starting and running a small business is securing adequate financing to keep your business going until you start breaking even.

According to Statistics Canada, the most common sources of financing for small and medium enterprises (SMEs) include:

sources of financing chart

Statistics Canada, Survey on Financing and Growth of Small and Medium Enterprises, 2014

In British Columbia there are many options for financial support to help overcome the challenges of starting a new business.

For more information:

Establishing a Credit History

In order to obtain financing it is important to establish a good Canadian credit history. Your credit history shows how much money you borrow and how quickly you pay it back. It is then used by prospective lenders to identify the level of risk you present. Unfortunately, your previous credit history in your country of origin won’t apply in Canada.

You can build your Canadian credit history by:

  • applying for a credit card through a local bank or credit union
  • paying all your bills on time
  • paying your required credit card payments when they’re due
  • don’t borrow more than you can afford

More information:

Personal Savings

Much of your start-up funding may come from your personal savings. According to Statistics Canada’s Survey of Financing of Small and Medium Enterprises 2014, 84% of small and medium businesses in British Columbia used personal savings to start up their business. Another 17% borrowed from friends and relatives.

Small Business BC advises that you aim to fund at least 25% to 50% of your business from your own assets. This shows prospective lenders and investors that you are personally assuming some risk, and are committed to your business success. It may also be a requirement for many small business loans.

Sources: SME Profile: Canada Small Business Financing Program Borrowers, How to Finance Your Start-up Business, Small Business BC

Bank Loans

Many small business owners obtain loans from local banks and credit unions.

Most banks offer programs specifically for newcomers, so be sure to do some research into different programs and services available to you.

Banks look at your total business proposal when deciding if you are a good lending risk and consider factors such as your business plan, cash flow projections, asset base, and viability of your business. To obtain a loan you will be required to make an appointment, bring your business plan, detailed financial information and a summary of your credit history and personal assets.

Find a local credit union:

Find a local bank:

More information on banking services in Canada:

Business Development Bank of Canada (BDBC)

The Business Development Bank of Canada is a government owned bank dedicated exclusively to entrepreneurs. You may qualify for financing with a BDC Small Business Loan of up to $100,000.

In addition to business loans, the BDBC provides advisory services and indirect financing to small and medium-sized enterprises across Canada.

More information:

Microloans

Microloans are often easier for newcomers to obtain than a traditional bank loan. They are small loans, often less than $10,000. With microloans, lenders are more concerned with the strength of your business idea and if you have a viable plan than your credit rating or assets.

Microloan programs available in BC include:

Government Sources of Financing

The federal and provincial governments offer a variety of programs for small businesses to help you start up, expand or improve your business.

The majority of government funding programs are typically loans, for which you’ll be required to repay the principal amount plus interest.

Loans

  •  The Canada Small Business Financing Program
    This program makes it easier for small businesses to get loans from financial institutions by sharing the risk with lenders. The federal government guarantees a loan made by the bank – up to a maximum of $1 million – for you to do things such as purchase land, a building, vehicles or equipment to start your business.

Grants and Wage Subsidies

  • Canada Job Grant
    You could get up to $10,000 per employee to help cover the cost of training

To find out about more government programs available to you see:

Non-Profit Organizations

Non-profit organizations are also an excellent source of start-up assistance for newcomers.

Some programs available to you include:

If you’re new to Canada and between 18-39 years old, this program provides you with access to valuable coaching/mentorship services and financial resources for starting a new venture.

  • Community Futures
    This program may provide financing to entrepreneurs in rural BC to start and expand your business

For more programs see:

Alternative Sources

Angel Investors

An angel investor is a person or firm that invests in your business, usually from their own funds. An angel investor will provide funding in the form of a loan or for a percentage stake in your business. Many angel investors are successful entrepreneurs themselves and can provide you with both financing and business expertise. To get their support you will need a good business plan and a strong “pitch.”

You can find angel investors by business networking or searching online directories including:

Crowdfunding

Crowdfunding is the raising of funds through the collection of small contributions from the general public (known as the crowd) using the Internet and social media.  It can represent an alternative to traditional forms of financing your business.

For more information see:

Additional Resources

  • Your Guide to Government Financial Assistance for Business in British Columbia
    Central Library, 658.1592 Y81
  • Canadian Subsidy Directory
    Central Library, 361.705 C213