Sources of Financing...
Your savings. The most accessible and unconditional source of funds for your new venture is your own accumulated wealth.
Friends and Relatives: There's a major risk involved, in raising money from friends and relatives. When and if the time comes to fish or cut bait, you might have to decide which you value more: their friendship or their money.
Angels: As their name implies, angels appear from the most unlikely places and at the most unlikely times to help you start your new business. But they don't usually appear unless you spend some time looking for them. Angels are often entrepreneurs themselves. They know how it feels to search high and wide for money. Try asking intermediaries (accountants, lawyers, bankers, consultants, and financial planners), who deal with entrepreneurs as a regular part of their business and those who are familiar with you and your capabilities as a business person.
Banks will provide financing to qualified customers, usually in the form of a loan, which is generally secured by a fixed asset such as real estate or equipment. If your business has no fixed assets, the bank will ask you to use your personal assets as security.
Banks will not:
  • risk their depositors' money on new ventures
  • provide equity financing to entrepreneurs without assets
  • speculate on tomorrow's successful new business without some reassurance that the business can survive today
  • lend money unless they're fairly sure they can get it back, on time and with interest
  • extend a loan to you just because you've dealt with the same bank for 12 years!
The Business Development Bank: The federal government administers a bank whose mandate specifically focuses on small Canadian companies. This bank provides counseling, consulting, and information, as well as financing to small companies.
Canada Small Business Financing Act (CSBF): Under this act, the government will guarantee most of a loan extended to a qualified small business.
Venture Capital: These people put their own financial well-being at some risk to provide financing to entrepreneurs. All you need to do is get down to business and build your company, sharing the eventual profits with your investors. They will keep a close eye on their investment and they will want to make certain that your business will be profitable.
You have access to credit that you may not have considered:
  • Credit cards: A cash advance against your credit card can be taken. There are cheaper sources of debt financing, but this is an option.
  • Trade credit: If you establish a good relationship with your suppliers and they believe in your plan to build a business, they will often provide you with their goods or services and allow you to pay for them later.
  • Customers: Depending on the type of business you start, you can often work with your customers to share the costs of a project. A contractor, for example, can provide their services while the customer pays for the materials. You can also negotiate with customers to provide you with partial payments over the course of a project, especially if it takes several months.
  • Real Estate: You can borrow money using your house or other property as collateral for the loan.
  • Equipment: Instead of using your own money to buy new equipment, you can obtain an equipment loan, secured by the equipment itself, which you can pay back over several years? Alternatively, why not lease it, or buy a used one?
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