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Business Loans & Financing Programs – Ways To Raise Capital & Financing For Your Small Business

Owning your own business can be rewarding and challenging at the same time. Starting a business often comes with high costs, while running a business presents other issues, like unpredictable cash flow and needing more funds to expand. Business loans frequently provide the necessary funds to cover expenses, grow, or invest in new equipment or research. Fortunately, there are many ways to borrow money for your business, which we’ll look at in this article.

Borrowing for Your Business

There’s a long list of reasons you may need to borrow money for your business, including:

  • Money to fund a start-up idea, such as a technology company
  • Funds to buy an existing business or franchise
  • Capital needed to improve the premises, secure a lease, or purchase equipment to run the business
  • Cash to cover ongoing expenses like payroll, inventory or to pay off other debts

Different types of business funding are available, depending on your needs. Sources of financing for businesses include venture capital, angel investors, government grants, research and development funding, and bank loans.

Angel investors and venture capital

There are similarities between angel investors and venture capitalists, but they’re not the same. Angel investors are individuals, not corporations. They invest to support businesses in the early stages, sometimes before the business has even started. Angel investors may fund entrepreneurs who want to pitch an idea or are beginning operations. The money doesn’t need to be repaid because angel investors take a share of the company as their potential profits. They’ll make money if the company does well and increases in value. If not, they could lose what they invested.

Venture capital comes from firms that typically specialize in funding new businesses or startups. The firms employ people who study investment opportunities. Unlike angel investors, the companies they choose to invest in are usually already in business and earning money. The purpose of venture capital is to grow the company.

Venture capitalists may provide mentorship and business expertise as well. Like angel investors, they take a share of the equity in the company. The hope is that the company will experience significant growth, generating an above-average return on their investment.

If you’re starting a new business, you could get funding from angel investors and venture capitalists. Many traditional lenders are unwilling to risk lending to a new business because they are unproven. However, if you present a great idea, a solid business plan and have the expertise to go forward, an angel investor or venture capitalist might approve your request for capital.

Small business loans

When you need a small business loan, your financial institution or the Business Development Bank of Canada may be able to help. Most banks, caisse populaires, and credit unions offer small business loans. The federal government reduces the risk of lending to small businesses if the lenders are part of the Canada Small Business Financing Program (CSBFP).

The CSBFP offers loans for small businesses up to $1 million and business lines of credit to a maximum of $150,000. So, a business can borrow a maximum of $1.15 million. Your business must have gross annual revenues of $10 million or less to qualify as a small business.

There are benefits to applying for a CSBFP loan instead of a business loan that isn’t part of the CSBFP. The program reduces the lender’s risk because the CSBFP guarantees 85% of the loan. The financial institution’s losses will be much less if you borrow money through the program but default on your payments.

Another benefit of CSBFP loans and lines of credit is the capped interest rates. The maximum your lender can charge for a floating rate is their prime rate plus 3%. The fixed rate is capped at the mortgage rate for a single-family dwelling of the same term plus 3%. So, if you take a five-year loan term, your rate will be the five-year mortgage rate plus a maximum of 3%. The rate for a line of credit is prime plus 5%. Interest rates for bank loans not part of the program may be higher.

Loan proceeds can pay for various business expenses, including:

  • Buying or improving land, buildings, and new or used equipment
  • Renovating leased property
  • Purchasing vehicles for commercial use
  • Buying a franchise
  • Purchasing equipment for production, a restaurant or a hotel
  • Computers, software and telecommunications equipment

You can apply for a CSBFP loan at your bank, credit union or caisse populaire. They will review your application and determine how much you qualify to borrow.

Government grants and research and development funds

There are different  types of government grants available to help small businesses. If you are interested in a grant for your business, you can research what’s available and how to apply. Make sure you meet the eligibility criteria before submitting your application. The process is competitive due to the number of applicants, so it’s best to submit a compelling proposal.

Business Development Bank of Canada (BDC)

The BDC is a crown corporation that supports small and medium-sized enterprises. It has been working with entrepreneurs in Canada since 1944, and its role is to complement the services financial institutions provide.

The BDC’s services are available to entrepreneurs across Canada. Depending on how long your company has been operating, it offers various types of assistance to businesses. Some resources you can find at the BDC are:

  • Financing
  • Corporate and wholesale financing
  • Advisory services
  • Venture capital, growth and equity capital, and growth equity partners
  • Tools and articles to help you with your business

When You Can’t Get Business Financing

If you’re in the early stages of planning or starting a business, you may need to look for funding sources to kick start your company. Alternatively, your business may already be established, but you have too much debt to qualify for another loan. Help is available.

Our team of Licensed Insolvency Trustees at Adamson and Associates will work with you to find the best debt relief option. We offer government-approved solutions to business debt, including the CEBA loan. You can consider a Division 1 Proposal, which will allow you to avoid filing for business Bankruptcy. It can reduce your debt to help you get back on track.

Call us at 1-519-310-5646 or contact us online at Adamson and Associates for your free consultation. We’ll work with you to find the best debt relief solution for your unique financial situation.

John Adamson, Licensed Insolvency Trustee Ontario

John Adamson, CPA, CMA

John is a Licensed Insolvency Trustee (1994), a Chartered Insolvency and Restructuring Professional (CIRP – 1994), and a Chartered Professional Accountant with a Certified Management Accounting designation (CPA, CMA – 1992). His experience includes more than 25 years of helping individuals, small businesses, their owners and even lenders, find solutions to their debt problems.

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