Funding your small business

3. Venture capital funding

Venture capital funding can be accessed through individuals (venture capitalists) or firms that pool their investment money from different sources. It's not for everyone, but if your business requires a very large sum of money, this may be the way to go. Typically, these investors look for newly formed companies with high growth potential, often in technology-driven sectors. In exchange for providing large-scale funding, these investors typically want equity in your business. Look for investors who can also offer experience, expertise or contacts.

With a new business that has not yet made its name, you need to do the legwork necessary to find possible venture capital funding. Start with your bank or with Business Development Canada (BDC), which works with venture capital firms focusing on specific industries. You can also cold-call firms affiliated with groups such as the Canadian Venture Capital & Private Equity Association or network with possible contacts through business incubators (defined below).

4. Angel investors

Angel investors are experienced business people and professionals who will typically lend you $25,000 to $100,000. Unlike venture capitalists, angel investors often fly solo, funding businesses that appeal to them personally and that can benefit from more hands-on, individual support. You may even end up with an angel investor who knows you personally and can vouch for your ideas with their funding. Or you may be able to attract interest through your participation in a business incubator (described below). They also bring contacts and experience to your venture. An angel investor will typically want to keep a low profile but will also expect a supervisory role in your new company, such as a position on your board of directors.

5. Loans & lines of credit

Banks may fund your small business in the form of loans or lines of credit. A loan is generally a lump sum amount for one-time, larger expenses that are repaid over a specific time period. You pay interest and make monthly or bi-weekly payments on loans. A line of credit is a set amount of money that you can draw from as needed, say for ongoing renovations or a timely business opportunity. You pay interest only on the money you use.

6. Business incubators

These investors typically focus on high-tech start-ups. They "incubate" new ventures for up to two years by providing them with access to office space or their own laboratories or to administrative, technical or logistical support. There are both private incubators and local economic development incubators, who may focus on job creation or revitalization. In exchange for this support, incubators will likely expect a share in equity and ask you to stick to a rigid development schedule and attend training from management professionals, entrepreneurs and other experts to help you develop your business. There is no central incubator organization in Canada, so start with the resources available at BDC to find possible incubators related to your industry.

7. Government funding

Many municipal, provincial and federal programs support and encourage new business, often through grants, loans or surety for loans from other lenders. Some programs are targeted to specific demographics, such as women or youth, while others may support specific industries or geographic areas.

Before you approach any of these funding sources, have a fully fleshed out business plan ready to wow them with your business's potential. This should include a financial statement, forecasts and a clear concept of your business (we’ve all seen Dragon’s Den, right?). You may also be asked to provide references, fill out an application or participate in an interview.