Guide To Startup Funding In Canada
YOUR COMPANY IS LOOKING FOR STARTUP FUNDS!
FUNDING FOR STARTUP NEEDS IN CANADA / HOW TO RAISE MONEY FOR A BUSINESS
New business financing for a small business in Canada requires the owner/owners to understand the risk and opportunities in startup challenges. Business finance is all about the risk of balancing starting and growing a company. Let's dig in on resources and methods of financing a startup!
SOURCES OF START-UP FINANCING / STARTUP FUNDING
If entrepreneurs want to prove that their business is a priority, it's important to know when and how to diversify funding sources to fund the high growth potential of the business. Having the right financing strategy will help protect your start-up from downturns in the market as well as giving lenders a glimpse of what they can expect if they fund your project when it comes to funds for startups.
Banks are only one source for funding - and the majority of businesses are not eligible for angel investors, crowdfunding, let alone venture capital or private equity type firms. ( By the way, those venture capitalists want a significant portion of your ownership when it comes to company funding and raising funds for startups ).
YOUR PERSONAL INVESTMENT
When it comes to start up business funding for a venture of any kind for the first time, it is often helpful—even necessary at times—to use personal investments or collateral on assets as seed money. This will prove that not only are you committed long-term but also willing to take risks if they present themselves along the way - It's the proverbial ' skin in the game' when it comes to being successful in start up loans.
BALANCE BETWEEN DEBT AND EQUITY
A significant consideration in financing a new company via a business loan is the delicate balance between debt borrowed as well as ownership equity in the business. Your ability to leverage the company properly is the true goal - not missing opportunities as well as not risking default when funding with debt.
The bad news in business credit is there is no perfect answer relative to the right combo of external financing and owner investment.
STARTUP STAGES OF FUNDING
Early-stage companies need to realize that only certain forms of capital financing are available to the business. Safe to say that more substantial and more established companies have a variety of additional business finance solutions available.
FUNDING SOURCES FOR THE EARLY STAGE OF A BUSINESS
What are the funding sources available for earlier-stage businesses? The life cycle of a new business has different cash needs - from pre-revenue all the way to high growth! Financing a business is all about knowing which stage your business is in and what is the best business startup loan that meets your specific needs.
it's all about determining the minimum amount of capital you need around your business model and what alternative structures might be available as opposed to traditional bank financing.
CRITERIA FOR LOAN APPROVAL FOR STARTUPS
While some business owners pursue federal government grants these are often difficult to obtain as well as time-consuming. Borrowers should be aware that some types of loans have stringent criteria, require an appropriate amount of due diligence on yourself and the business, as well as your ability to inject some of your own funds into the business.
Depending on the type of loan and nature of your business anywhere from 10-40% of the project will typically be funded by your own down payment or equity injection.
Ensure you have a solid business plan that describes your business idea as well as the financial plan related to the business regarding cash flow and profit projections and management expertise. 7 Park Avenue Financial prepares business plans that meet and exceed the expectations of banks and commercial lenders. Your own ability in how to present a business plan and explain cash flow and profit potential is key.
As you may have figured out, it's really all about determining what stage your company is in, as well as having a good handle on industry characteristics.
DEMONSTRATE THE CHARACTERISTICS OF A GOOD STARTUP
Naturally, business owners are focused on less expensive capital, notwithstanding the fact that many forms of capital will always be more costly than traditional bank financing or equity finance alternatives when it comes to small and medium sized firms. Your ability to demonstrate some good growth, profit margins and an experienced ownership/management team will go a long way to reducing individual startup new business financing costs and rates.
Planning in advance never hurts, issues such as a good business plan, cash flow forecast and mgmt overview are key to getting the right financing before you may necessarily need it.
Also, separating long term asset and finance needs from short term working capital and cash flow solutions will demonstrate a proper ' matching ' of sources and uses of funds. The best example of a poor financing strategy is to use short term funds to finance long term assets - for example: using a line of credit to fund a capital/equipment purchase.
Proper mgmt of business and personal collateral is key to also managing future financings. Quite often a combination of different funding and capital financings is the best solution for a new business. Proper use of guarantees and asset lines is key in the early stages of a company.
Funding for a small business will always be a challenge - many clients we meet at 7 Park Avenue Financial tell us they often don't even know where to start when it comes to financing options. The reality is though that there are in fact financing choices you can make in the start-up phase.
GOVERNMENT LOANS FOR NEW BUSINESSES IN CANADA
Canadian small businesses looking to access new assets or improve their operations can take advantage of the Canada Small Business Financing Loan (CSBFL), a government-backed loan program that offers support of up to $1,000,000 in financing. Thousands of businesses every year utilize the guaranteed government loan program for funding for startups in Canada.
Canada's non-bricks and mortar entrepreneur bank offers term loans and working capital loans if companies meet lending criteria. The essence of that lending criteria is good personal credit and net worth as well as business experience and the ability to put some equity into your project. This business start up loan is typically a term loan with a defined repayment structure
Although many new businesses have been financed on the backs of business or personal credit cards we at 7 Park Avenue Financial don't recommend the mixing of business and personal credit borrowing in financing for startups if at all possible.
Of course, there is the proverbial ' family and friends' generally also not a recommended strategy when it comes to payback and relationships!
Some online portals also offer business loans but they can be very expensive although the appeal of quick and relatively easy financing is seductive for many business borrowers. We always recommend that a client prepare a solid business plan outlining their experience, cash flow projections, and otherwise.
CONCLUSION - BUSINESS START UP FUNDING
If you're focused on a loan for a business, and the best type of financing and the right business loans for new or early-stage small businesses speak to 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can assist you with your start-up and growth needs when it comes to start up costs for business
FAQ: FREQUENTLY ASKED QUESTIONS
Can you get a bank loan to start a business?
Bank loans are the best way to get your small or medium-sized business going. That's because all banks offer different advantages, whether it’s personalized service or customized repayment plans. It would be a good idea for you to shop around and find which bank meets your specific needs before committing yourself to one particular institution!
The challenge in funding startups via banks is that Canadian banks prefer a track record in later stage firms, ( typically at least 2 years in business) as well as very solid personal credit and credit scores for the business owners - as well as the requirement for a personal guarantee to back up the loan.
What is bootstrapping in business?
Despite the current bull run in start-up financing, not every company needs to get funded. Some businesses can be started and grown organically without needing any outside funding at all.
In a world where most investors are looking for instant returns on their money, there is something refreshing about starting out with nothing but your own energy and creativity that makes it easy to have success when you operate this way from the beginning of your business venture - some might say easier than trying to grow by acquiring other companies.
Can you finance r&d credits?
Under the Canadian Scientific Research and Experimental Development Tax Incentive Program (SRED or SR&ED), tech startups can access up to 35% of what they've spent on eligible R&D activities as a repayment from the CRA. This refund can amount anywhere between a few thousand dollars to several million dollars, making it an accessible option for those just starting out and making a commitment to research and development in intellectual property and in their overall capital funding process as they invest in the future of their products and services.
SR&ED loans are suited to every industry but are very common in the technology space in Canada when it comes to ' fintechs' and funding for research in areas of software, etc.
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7 Park Avenue Financial provides value-added financing consultation for small and medium-sized businesses in the areas of cash flow, working capital, and debt financing.
Business financing for Canadian firms, specializing in working capital, cash flow, asset based financing, Equipment Leasing, franchise finance and Cdn. Tax Credit Finance. Founded 2004 - Completed in excess of 100 Million $ of financing for Canadian corporations.
Stan has had a successful career with some of the world’s largest and most successful corporations. He is an experienced
business financing consultant.
Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.
Stan has over 40 years of business and financing experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in-depth, hands-on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.
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