From crowdfunding to loans: How to find startup funding

Bankroll your dream

Starting a business can often mean raising money. If you’re looking to get funding for your Canadian business, you can try approaching a lending institution, working with the government, or reaching out to the public through crowdfunding sites. Take a look at all the funding options available and see which one is best for your business.

4 places to find startup funding

Some small businesses require an initial investment to start — whether to buy a delivery van or a specialized piece of equipment. Here are four places to look for funding.

  1. Friends and family.

  2. Crowdfunding.

  3. Bank loans.

  4. Government loan or grant.

Debt is a part of every business, but you want to be smart about borrowing. Here are your options.

1. Friends and family

Who’s eligible: Anyone with a wide network of friends and family
Application process: In-person or over the phone
Terms: Varies by situation

For some entrepreneurs, friends and family are often the first source of startup funding. This can be a good option if you don’t have great credit or you’ve had trouble getting approved for a small business loan in the past.

A loan from family is also a good option if you don’t have the strong online presence required for successful crowdfunding.

There’s much less paperwork involved when borrowing from friends and family. Many will lend you the money without making you jump through a lot of extra hoops, but it all depends on your relationship with the person in question. If you have a history of being relatively careless with money, some of your loved ones might be hesitant to issue you a loan. This might be the case if you are deep in credit card debt.

The person handing out the loan is free to set whatever terms they feel are necessary. They could ask you to pay interest or to keep a detailed record of how the money will be used. They might ask you to give them something in return, such as an ownership stake in your new company.

If you’re looking to borrow from friends and family, have a clear, upfront conversation with your loved ones, describing your reasons for needing to borrow the money and how you plan on paying them back.

2. Crowdfunding

Who’s eligible: Anyone with a good idea and an internet presence
Application process: Online
Terms: Varies by fundraising platform

 Crowdfunding InKind

Crowdfunding relies on small contributions from many people to generate startup funding.

 

There are a range of websites like OurCrowd to help people like you get a project off the ground. Some other options:

  • Sites like GoFundMe are geared towards personal projects and those dealing with a personal crisis such as an injury or medical emergency.
  • Organizations like Kickstarter are more suited to creative projects like making a film or creating a new line of T-shirts.
  • Indiegogo tends to cater to a wide variety of projects, but it might be hard to stand out in the crowd.
  • You could also try a niche crowdfunding website that funds projects related to your industry. For example, InKind caters specifically to food startups and restaurants.

Every crowdfunding platform has its own terms, with different fundraising options. The website might take a portion of the money you raise, or you might have to reach your fundraising goal before you can get access to your funds.

3. Bank loan

Who’s eligible: Anyone with a good credit score and a business plan
Application process: Online or in-person application
Terms: Varies by lending institution

Some banks and lending institutions will offer their own small business loans, while others partner with the Canadian government to help ease the burden on small business owners. Every lending institution will have their own terms for the loan — stricter than crowdfunding terms — and you’ll need a detailed business plan to get started. The plan should cite the idea behind your company, what you need to buy and how you plan on making money.

Bank loans usually entail a personal guarantee of 25 percent of the total loan amount; a competitive or fixed interest amount, depending on how soon you can pay off the loan; and a set monthly repayment schedule.

You could decide to make lower monthly payments in the beginning of the lending period with larger payments 10 or 15 years down the road. This might make the most sense if you’re trying to pay off expensive equipment or your new business doesn’t have a lot of startup funding in the short-term.

Paying less upfront can lead to more interest down the line, so make sure you have a detailed plan for how your company’s revenue will grow in the coming years, so you can pay off the loan. You don’t want to be in debt forever.

If you have a good credit score and a strong business proposal, there might be several different banks looking to lend you money. You can try visiting local lending institutions to see which bank will offer you the best terms and the lowest interest rate.

4. Government loan or grant

Who’s eligible: Small businesses or startups operating for profit in Canada, with gross annual revenues of $10 million or less
Application process: Online or in-person application (business plan required)
Terms: Varies by funding program

Crowdfunding Government Loan
A carefully written business plan is essential when applying for a bank or government loan.
Photo: Nik MacMillan on Unsplash

The Canadian government offers a range of startup funding programs that you can use to get your business off the ground. One of the most popular options is the Small Business Loan Program, which is reserved for startups operating in Canada with less than $10 million in annual revenue. These loans are not available to those in the farming industry, nonprofits or religious organizations.

Such loans must be used for one of the following:

  • Purchasing or improving land and buildings used for commercial purposes.
  • Paying for renovations to premises occupied by the business as a tenant.
  • Buying or improving new or used equipment (including commercial vehicles).

Of course, this is just one of the many startup funding options available from the Canadian government. They have many different programs that cater to entrepreneurs, nonprofits and businesses large and small, across a wide range of industries. Many of them are tied to government incentives such as:

  • The promotion of clean energy
  • Expanding to new international markets
  • Reducing poverty
  • Improving education
Crowdfunding Open Sign
A government loan could be the key to launching your new business.
Photo: Finn Hackshaw on Unsplash

If you’re not sure what kind of government grant or loan you should be applying for, you can also try working with a third-party government funding planning company like Mentor Works. A consulting company can help you put together your application, maximizing your chances of success.

Take a look at their list of all the Canadian government funding programs available to you, including those for special populations such as women entrepreneurs, minorities and native peoples.

Good luck in your quest.

Image by: Levi Guzman on Unsplash