Alternative Funding Options for Opening a Small Business in Canada

One of the many hurdles of launching a business in Canada is acquiring the capital needed to start a venture. Traditional lending institutions have strict processes and requirements before approving an aspiring owner’s loan. Those who don’t get approved for a loan often make the mistake of dipping into their savings to fund the startup themselves.

Investing your savings is not ideal because it could make you financially vulnerable, especially if the business fails. When that happens, you will have difficulty paying personal bills and certain emergency services. 

This is where alternative funding comes in. Sources like private investors and crowdfunding platforms have enabled aspiring entrepreneurs to launch their businesses without tapping into their savings. 

In this guide, we list some of the best funding options to help launch your small business. Read below for more. 

Why Choose Alternative Funding 

Leveraging other funding options provides a straightforward and quick way for aspiring owners to acquire capital funds. Doing so eliminates all the tedious steps and requirements traditional lenders, like banks, have. For instance, you won’t have to maintain a significant credit score when obtaining funds to launch your venture. 

More often than not, these alternative sources also have more flexible payment terms and conditions. Some lenders require borrowers to pay after a year, while others might ask them to pay when the venture starts earning money. Sometimes, borrowers won’t have to pay for interest rates or ownership equity, offering them better control when running their business. 

Meanwhile, some funding options, which we’ll list below, may provide more than financial support. They could offer valuable expert advice and networking opportunities that allow businesses to grow in their field further.

What To Know Before Finding Alternative Funding 

Of course, to get the mentioned benefits, you must approach the following options carefully. It might be easy to get lost in the appeal of quick funding, but keep in mind that malicious or fraudulent lenders exist today. They will trick borrowers and surprise them with high interest rates or shorter repayment periods, harming their clients’ cash flow and significantly damaging their business.

When that happens, you might end up in more debt than you expect, or worse, you might be forced to dip into your savings to address the issue. Using your savings is the one thing you’re avoiding when seeking alternative funding.

Always review your chosen funding option before signing papers or accepting any money. If you can, seek expert advice about your preferred source and gauge its long-term effect on your venture. 

Alternative Options for Your Small Business

As mentioned, many alternative sources aside from traditional lenders like banks are available. We’ve listed below some of the best ones you can use for your small business.

Angel investors

For those unfamiliar with the term, an angel investor is someone with a significantly high net worth and provides capital for small enterprises, usually in exchange for ownership equity in the company. More often than not, these investors center on funding startups because of the high rate of return compared with investments like stocks or bonds.

The best part about angel investors is that many of them are successful entrepreneurs themselves. Aside from financial support, they could provide valuable expert advice, mentorship, and industry connections that can elevate your business. Since they’re looking for a high financial return, they’re likely willing to support your venture beyond funding it. 

Venture capital

Venture capital is a type of private financing typically provided to startups with excellent growth potential. This type of monetary assistance is controlled by private firms with access to various financial sources, from individual investors to corporations. They aim to provide financial support to promising small businesses in exchange for ownership equity. 

Like angel investors, venture capital firms can offer expert advice and networking opportunities to help their clients succeed. Today, various venture capital firms are available across all major Canadian cities to help aspiring entrepreneurs launch and grow their businesses. 

Government loans

In addition to private lenders, various sectors within the Canadian government offer grants, subsidies, and tax incentives, funding promising projects like small businesses and innovative research.

One of the best examples of these programs is the Canada Small Business Financing Program (CSBFP). This initiative allows startups to get loans from financial entities like banks and credit unions by sharing their risks with lenders. Borrowers can get as much as 1,000,000 dollars, of which no more than 500,000 can be used to purchase equipment or improve properties. 

Meanwhile, always avoid using the wrong public loans to launch your business. For example, some might use a portion of their mortgages to build their capital funds, which is risky because they might default on their loans when their business fails. For example, in the US, VA loan rates are significantly low and are attractive to potential entrepreneurs, but they’re not ideal to fund a business.

Crowdfunding

Crowdfunding is a modern solution to raising capital from a significant number of people without the need to apply for a loan. Often, this process is conducted online, where individuals or businesses can seek funds for a project, venture, or charitable cause. Many aspiring entrepreneurs have used this solution to reach their target funds and launch their businesses. 

Among the best crowdfunding platforms available are Kickstarter, GoFundMe, and Indiegogo. The amazing part is that starting a campaign won’t cost you too much, meaning you can make your pitch and grow your capital immediately. 

Family and Friends

If you’re looking for the most flexible way to acquire funds for your business, seeking the help of family and friends is the ideal option. With this one, you won’t have to pay any lending fees when borrowing money for your venture unless you and your chosen lender agree. 

In addition, you can acquire funds immediately because you won’t have to go through any application process. The best part is that, more often than not, family and friends won’t require any ownership equity out of support, providing you complete control of your venture.

However, asking a loved one to fund your business could damage your relationship with them. This often occurs when borrowers don’t pay on time or if lenders require payment way ahead of the agreed-upon timeline. 

The key to avoiding any issues with your loan is to make it official with your lender. A personal loan agreement is a contract that outlines the expectations of both parties. Official lenders like banks often draw up this type of document, but you can also use it in an informal situation like a family or friend lending a significant amount of money.

Launch Your Venture Today 

Listed above are some of the best funding options you can leverage to launch your small business. Choose the one you find most convenient and secure to prevent issues affecting your venture and personal finances later. Plus, always ensure that your loan goes through the proper process so that the funds you receive are legal to use. 

- Advertisment -