Start Up Business

How to Finance a Start Up Business in Canada

Financing a start up business is a huge challenge in the current economy. New entrepreneurs have business ideas and they wish to monetize those ideas into a real business. In the current environment, more than ever, traditional financing is difficult to achieve for a start up.

There are however a number of strategies that the business owner can utilize to either replace or augment traditional financing.

We would point out those traditional financing typically involved banks via new business loans, and, most commonly, the Government Small Business loan, more commonly known as an SBL loan.

Let’s look at some financing options, somewhat non-traditional in nature, to assist the new entrepreneur.

Many customers have not completed their development for their final product or service. Additional capital can be brought into the new business by considering such strategies as customer down payments, use of ‘ try and buy ‘ programs from manufacturers , or simply maintaining a current employment until the product is completed – we would point out that many people entertain ‘ consulting engagements ‘ during this time period .

As the product /service is completed, and is ready to be marketed the entrepreneur could consider such financial strategies such as delayed commissions to sales personnel , utilizing temporary office space, and temporarily subsidizing the business via credit cards . We caution owners not to max out on cards, or default in payments, as this will have a long term effect on the owners overall credit worthiness. For the next several years to come banks and other lenders will be looking for a ‘clean credit scores ‘to augment any business borrowing – so don’t destroy your personal credit rating too early in the game. Fortunately or unfortunately credit cards have become a major source of small business financing – if utilized properly it is certainly an option. Key word: Utilized properly!

Typically as the customer enters the revenue phase of business is an excellent time to start talking to banks about small business loans, as well as the government loans available.

The owner can at this point utilize a number of other strategies to reduce cash outflows and financing needs – these include utilizing or purchasing used equipment in stead of new, or entering to equipment leasing arrangements which typically provide close to 100% financing.

Customers are cautioned at this point in the business to stay totally on top of invoicing (Invoice promptly!); owners should also be establishing trade credit with suppliers, and in instances where possible negotiating higher credit limits and extended terms. Suppliers will consider this for the right future customers!

Business owners are also encouraged to investigate factoring – which is the immediate payment of your receivables by a third party. Solid partners in this area at reasonable rates (typically 2%/mo) can be the life blood of a business for an intermediate amount of time prior to negotiating full fledged bank financing.

In summary, non traditional financing will not finance all of a new start up, but it sure can help. Customers are encouraged to get their operation up and running as quickly as possible, focus on sales and collections, and work towards growth at a reasonable rate. Business owners who exhibit these qualities in their business model will find proper bank financing and other business financing just around the corner.

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