Sources of Small Business Funding

Once you have determined how much funding you will require to start or grow your business, you must decide how you will raise the capital. Choosing the right source depends on what you intend to use the money for, how much you need, what the alternatives are and matching the source of the funds for the use.

To help navigate how to raise money for your business, consider these six steps.

Step 1: Minimize how much you need

Carefully check how much capital you require, as lowering the amount makes it easier to raise and can help guide you to the right method. There are a number of things you can do, for example:

  • Considering borrowing equipment before buying, leverage your contacts and network to meet short term needs
  • Buy second-hand equipment not new
  • Leasing rather than buying equipment and vehicles (seek professional advice on the implications, tax and otherwise)
  • Consider limiting the number of products at the time of launch to lower initial start-up production costs
  • Search for lower cost premises – you may not launch in your dream location.
  • Buy only the quantities of materials or inventory that you absolutely need to avoid sitting on inventory.

Step 2: Start with your own cash

The best-case scenario is you have all the money you need in cash reserves. Your own cash will most often be the cheapest funding you’ll get, but ensure you consider your personal budget and savings plan.

Step 3: Partner with others

Are there other business owners or companies you could collaborate with? If you wanted to enter an export market, an option is to raise capital to fund the infrastructure you’ll need, While another option is find an existing business already exporting that you could partner with. BA strategic alliance with a partner could be a benefit in the short and long term to both businesses.

Step 4: If it makes sense, borrow the money you need

Ok, yes, borrowing is one of the steps, no surprise here. The main options include:

  • Discuss your financing options with your bank
  • Other lenders to consider include finance companies, supplier credit or supplier finance. Make sure you’re aware of all the obligations and costs before you proceed
  • Investigate emerging funding sources such as crowdfunding where groups of people pool small amounts together as an investment or a down payment on a future purchase. This might suit your type of business.

At the end of the day the best sources of funds are most likely those that free you up to grow your business without excessive costs to weigh you down.

Step 5: Angel investors and venture capital

If your new business has a bright future, it’s possible outside investors may be prepared to contribute initial capital.

Angel investors typically seek business opportunities with promising growth opportunity. You can search online for local providers, but often funding will be sourced from local entrepreneurs, councils, corporate investors, incubators and accelerators. The National Angel Capital Organization might be a good place to start.

Venture capitalists tend to be investment companies seeking more established businesses. Check out the Canadian Venture Capital and Private Equity Association (CVCA) for more detail.

Step 6: Grants and subsidies

It’s always worth checking out what the government can offer. This type of funding mostly comes in the form of grants, tax breaks, wage subsidies or loan guarantees. For example:

Next steps

At the end of the day the best sources of funds are most likely those that free you up to grow your business without excessive costs to weigh you down. Consider a combination of sources of funds to ensure you have enough capital for a contingency fund, so you do not need to seek additional funding immediately after launch.

Finally, consider seeking outside expert help to assess your options, especially if there are tax or long-term debt implications.

If you'd like to talk about your business banking needs, feel free to contact your TD Account Manager or find an account manager near you.

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