Coming up with an innovative business idea is what all aspiring entrepreneurs wish for, but this step is far from being the only thing you need to set a business in motion. Apart from a killer idea, thorough market research, and a well-written business plan, there is one small detail you also need to take care of – funding.
Funding their business is what scares entrepreneurs the most, mostly because they feel that their business plan won’t be good enough to convince banks to give them a loan. But traditional loans are not the only way you can finance your business, especially now, with emerging financial technologies. Fintech companies seem to have understood the importance of small businesses, given the fact that Canada’s economy is mostly powered by them. In fact, out of all Canadian businesses, 98.2% are small businesses, with fewer than 100 employees.
If you are determined to get your business running, but your major fear is you won’t get the capital to do so, take a look at the following ways you can finance your idea. The only thing left to do is decide which one (or more) works best for you.
If you want to go the traditional way, then a business loan is what you should be looking for. But getting one is not exactly piece of cake. Unfortunately, banks are quite a skeptic to lend money to beginner entrepreneurs and their small business, fearing they might fail to become successful. But even those who manage to get a business loan will have other obstacles to face. Typically, small businesses don’t get more than $500,000 in finance and do have to pay higher interest loans than big businesses do. The main problem that comes with small business loans is that they are not being granted based on the status of your business, but rather based on your personal financial status.
But finding financing for business in Canada does not have to rely solely on bank loans. Private business loans are an option that many entrepreneurs consider, especially those who have been self-employed until recently. The loan term is usually shorter (12 to 60 months), but their requirements are far less strict and funds are almost certainly granted if you have a good credit history and no financial troubles.
Crowdfunding is another financial solution that businesses can use to fund their ideas. Although still relatively new, the crowdfunding sector is estimated to reach $300 billion by 2025, which means more opportunities for small businesses to emerge.
There are multiple crowdfunding categories that you can choose from, depending on what brings you more security:
- Reward-based crowdfunding
The most popular crowdfunding solution, reward-based crowdfunding platforms have made quite a name for themselves in the past few years. The principle is simple. You list your business idea and state the capital you need, and people pledge money to you. Then, as the name calls it, you need to reward your funders. Rewards can be products or services that your business provides or shares in the company.
- Peer-to-peer lending
Similar to borrowing money from friends and family, peer-to-peer lending follows a basic principle: you borrow money from people through a crowdfunding platform and then pay them back with a set interest rate. This is great for people looking to raise large sums of money, that they can’t typically borrow from relatives or friends.
Some philanthropists are becoming more and more reluctant to giving money to the poor. Instead, they prefer to finance entrepreneurs in need of money to kickstart their business. On such platforms, almost anyone can contribute. All you need is a groundbreaking idea and a good plan to convince people to put their trust in you and provide financial support.
- Equity Crowdfunding
Equity crowdfunding has the potential to be one of the best ways individuals choose to invest their money. On such platforms, investors give money to entrepreneurs, in exchange for a small slice of the company’s ownership. The only thing you need to keep in mind is how much of your business are you willing to give away.
This is one of the best things that could happen to entrepreneurs right now. Startup incubators are a way for you to not only get funding but also receive mentoring and both entrepreneurial and financial education.
Incubators, or accelerators, are companies that look to nurture and assist startups to form the very first steps of their journey, up until the moment they are ready to take out on their own. They help entrepreneurs tailor their ideas, assist with market analysis, financial management, education and of, course, networking.
Most accelerators seek tech-based ideas, but that does not mean a more traditional business can’t succeed in finding opportunities, as long as it has potential. What you need to know, however, is that most accelerators usually offer equity-based investments, meaning you will have to share ownership of the company.
Although you may not think that businesses would deliberately send financial help to another business, you may be happy to know that this is actually possible. Think of it like a symbiotic relationship, where both businesses have a lot to gain from. For example, a vendor that is in need of clients to increase their reach may help a small business that needs financial aid, in exchange for them selling out their products.
One such example in the U.S.-based company, Whole Foods, which sells organic products. They provided Canadian-based Molly B’s Gluten-Free Kitchen, a small bakery, with a loan to purchase a new oven they needed, in order to grow their business. In exchange, the bakery will sell their products in all Whole Foods stores in Ontario.
Other more famous companies, such as Amazon and PayPal have long been giving financial aid to small companies, to help them grow. The key here is to find something that you can give back, that the company lending you the money can’t refuse.