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Where Do Canadian Small Businesses Explore for Startup or Additional Funding?

By Townes Haas   |    August 27, 2015   |    12:13 PM

Access to funding is vital for small businesses to flourish, especially at the startup stage, often called the seed stage. Funding can also prove vital for small businesses wishing to expand and improve their offerings. It is important if you are a small business owner in Canada to be aware of the various funding options available. You should also bear in mind that each has its pros and cons.

The federal and provincial departments of the Canadian government offer a multitude of funding grants to small businesses. Funding is available for everything from acquiring business real estate to sponsoring research and development. Funding opportunities may differ in each province. In some provinces, if your small business is deemed part of the strategic sector, you could be eligible for funding to expand into external markets. In many provinces, funds are available to cover up to 2/3 of the costs of training your employees. Although such funding appears to be an attractive proposition for small business owners in Canada, remember that it is notoriously difficult to obtain and highly competitive.

Private sources of funding include banks and credit unions, who can offer loans. Interest rates vary between different branches, so shop around before you make a decision. Be aware that banks can be quite stringent in their evaluations of prospective small business loan customers, especially new businesses requiring startup capital. Make sure that you have at hand an enticing small business funding proposal before approaching banks and credit unions. If you have a limited track record it might be hard to acquire a loan. Applying for an unsecured small business line of credit is one way of overcoming that obstacle. Start small and accept whatever size line available. This will allow you to get a foot into the bank's financing door.

Venture capitalists (VCs) and angel investors may also be approached for funding by small businesses in Canada, especially startups. Canadian companies like iNovia capital, OMERS ventures and innovacorp offer funding to small Canadian businesses. However you should be aware that VCs offer funding to only a minute proportion of businesses, usually in their seed stage and seek high risk/high reward investments. VCs and angels are typically focused on the bottom line, whereas as a small business owner you may want to prioritize other elements, such as culture.

Crowdfunding recently emerged as a novel way for companies to raise funds. The term was coined in 2006 following the successful launch of various websites such as EquityNet, Pledgie and others. Now there are numerous crowdfunding sites to chose from. Crowdfunding involves raising many small amounts of money from a large number of people via the Internet. Depending on what approach you take, you may or may not be able to keep funds raised. The “All-or-Nothing” (AON) method entails that a small company must raise 100% of its funding goal or it is unable to keep the capital. The second approach is the “Keep-It-All” (KIA) method. With KIA all the money your small business raised can be kept, regardless of reaching the fundraising goal. There are quite a few advantages to crowdfunding. It provides cost-free marketing. If lots of people support your idea online, this means free publicity, plus you show other potential investors, like VCs or banks that your concept is supported by the general public. This may convince banks or VCs to give you additional funding. There are many disadvantages though too. For example, it can be hard to reach your funding goal. You have to be prepared to spend long hours promoting your campaign on social media. Furthermore due to Canadian government regulation, the limit is capped as to how much you are legally allowed to raise.