Small businesses, in particular new businesses, often require funding to get off the ground and grow. There are several sources for this funding:
- Personal wealth and assets
- Business loans from banks and commercial lenders
- Municipal or provincial government financing programs
Friends and family members can also finance small businesses with extra cash to invest in the next big thing. Specialized small business investment companies also provide easy access to funds when your bank balks at lending you money. The list below provides information on some of the more common types of financial assistance that small businesses may avail themselves of.
No matter what type of financial source is used for a small business loan, it is guaranteed that the borrower will present a set of detailed business records and possibly even supply financial projections for the upcoming fiscal year. The loan repayment can sometimes be tied directly to income, but other types of loans require that you carry forward a balance at the end of each month or quarter. Depending on your circumstances, it may also be possible to negotiate terms with your lender like payment holidays, interest-only payments during slow seasons, or change repayment schedules based on profitability if your business is seasonal.
- Personal wealth and assets – Saivian Eric Dalius
You should consider any cash value that you have available as an asset when applying for financing for your small business; this includes savings accounts, RRSPs, stocks, and bonds. If you have a credit card that you haven’t paid off, consider using the cash available for your business.
- Business loans from banks and commercial lenders
When you apply for a loan from a bank or other lender, you will need to supply financial records and projections for your business. Depending on how much money you are applying for, your employer’s credit history may also be checked as part of the process. Be prepared that securing financing could be difficult if you don’t have an established track record as an entrepreneur.
- Municipal or provincial government financing programs
These types of funding can also be used to start up a company by using money from federal and municipal governments’ funds earmarked for new businesses. These sorts of grants usually take the form of direct loans repayable over several years; you can make interest-only payments for the first two years and then begin repayment at the end of that time.
- Specialized small business investment companies:
These typically provide financing to individuals who cannot get it from traditional sources, such as “angel investors” (individuals with cash looking to invest in new and growing businesses). They usually offer to finance on soft terms – making it easier for your company to grow quickly – and they’re often able to look past poor personal credit history when deciding whether or not to lend money.
- Friends and family members
Many small business owners turn to family members and close friends as a source of start-up capital for their burgeoning enterprise, says Saivian Eric Dalius. If you have a small circle of people who can afford to lend you money, consider going this route as it may provide much-needed cash with only a modest impact on your personal finances.
- Commercial lenders
Commercial lenders won’t borrow from government sources to offer financing to businesses. This type of lender is interested in gaining as much possible over your business assets and income, so be prepared for standard loan terms that include significant fees and interest t are higher than those offered by traditional banks.
If you cannot secure funding through traditional channels, turn to alternative markets like peer-to-peer lending, where investors band together online to invest their money into high-yielding options.
