Navigation skipped

Small business funding: Exploring key funding sources

Finding funding for your small business can be a challenge. Learn more about the different types of funding available to help you get started.

Updated

10 min. read

- Small businesses can have many funding options, including self-funding, grants, loans, investors, and alternative sources—each with different trade-offs.
- Grants and government programs can reduce cost and ownership risk, while loans and investors can provide capital to support growth at different stages.
- A clear financial plan helps you choose the right funding based on your business goals and cash flow needs.

Coming up with an idea for your small business is just the first step of a larger journey. Getting your business off the ground requires comprehensive planning, hard work, and just a bit of luck. Oh, and let’s not forget about business or startup funding.

There are several potential funding sources available. So, when you're ready to finance your business idea, consider these options.

Self-funding your small business

Don't overlook the value of using your own money—if you’ve got it. If you believe strongly enough in your business plan that you're willing to invest your own resources, potential investors may reward your commitment with funding of their own. Remember that your investment doesn't necessarily have to be cash.

It’s not always easy to self-fund, but the advantages can be invaluable, and can include: greater control over business decisions, potential for higher profits, and an easier way to access funds.

Friends and family

Friends and family can be a funding source, but keep in mind that mixing relationships and money can be challenging. If you do decide on this route, legal advice and contracts can be helpful in establishing lending terms and professional boundaries. Be clear about whether your lender is merely loaning you money or is buying equity (partial ownership) in your business. Loans must eventually be repaid from your profits, while equity gives investors a share of the profits and possibly even a say in your business.

Grants

Governments, financial institutions, nonprofit foundations, and corporations can all offer grants to assist with specific activities or business areas, although receiving this type of funding can be competitive.

Whether you need funding for research and development, marketing, or employee training, grants can be a valuable resource. Programs are available across nearly every industry and for a wide range of groups, including women, newcomers to Canada, and Indigenous entrepreneurs.

Additionally, grants often provide recipients valuable supports such as business mentorship and networking opportunities. Grants can be difficult to obtain, as most programs involve an extensive application process and strict eligibility requirements. However, securing a grant can be a major advantage as they generally don’t require repayment and don’t dilute equity or collateral, which makes them valuable for businesses having difficulty accessing other forms of financing.

Some key advantages of grants can include: wide range of groups and industries supported, business mentorship and networking opportunities, and no collateral required for funding.

Government-supported funding

Many municipal, provincial, and federal programs in Canada encourage entrepreneurship with grants, loans, or loan guarantees that help lenders finance businesses. Some programs cater to certain demographics like women or youth, while others target specific industries or regions.

Whether you’re looking to fund research and development, hire more employees, adopt new technologies, or simply support daily operations, government funds can help your business sustain operations and grow. The most popular government funding options include loans, tax credits, rebates, and programs.

Government Loans

The Canadian government offers several loan programs for emerging businesses to support growth and create jobs. They can help small business owners finance new equipment, improve properties, and access working capital, however, these programs come with specific conditions you must meet to qualify.

For example, you can apply for the Canada Small Business Financing Loan at eligible financial institutions, but it can only be used for Canadian startups or established, for-profit businesses with revenues below $10 million.

Tax credits

Tax credits can reduce your business’s taxable income and save you money.Footnote 1 There are a range of tax credits available, each designed to encourage businesses to make specific investments in areas such as R&D, energy efficiency, and hiring.

Rebates

A rebate reimburses costs you spend on a product or service, which can make running your business more affordable. Eligibility requirements can vary widely depending on the rebate in question, so make sure to do your research to find the opportunities where you can save.

Programs

Small businesses can also access funding through a variety of government programs. Examples include the Trade Expansion Lending Program (TELP), which helps businesses access more working capital, and the Canadian Agricultural Loans Act Program (CALA), which is focused on financing farm improvements.

Canadian government programs provide grants, loans, tax credits, rebates, and specialized funding to support small businesses, often targeting specific demographics, industries, or business needs.

It can offer significant advantages, such as: lower interest rates, no ownership dilution, and improved access to capital for those facing barriers to other sources of funding.

Investors

Investors provide businesses with capital in exchange for either an ownership stake (equity) or repayment with interest. Common sources include venture capital firms, private equity investors, and angel investors, and each investor will have varying involvement and expectations.

Venture capital and/or private equity funding

Venture capital (VC) and private equity (PE) funding are typically geared towards startups rather than a traditional small business, but for early-stage startups with strong growth potential, they typically offer funds in exchange for equity ownership. As funding is exchanged for part ownership, this can also mean changes in business decision-making and loss in full ownership for a business owner. Business owners seeking these options might do so because they might not be able to access funding through traditional borrowing options, and depending on the terms of funding, there is no demand for immediate repayment.

Venture capital is provided by professional investors or firms that pool funds from institutions, corporations, and wealthy individuals. It's not for everyone, but if your business requires a very large sum of money, it may be the way to go. Typically, these investors look for newly formed companies with high growth potential, often in innovative, technology-driven sectors. If you choose to pursue this route, look for investors who can offer more than just funding, but also strategic guidance and experience.

If you’re a new entrepreneur, you can start your search with your bank or with Business Development Canada (BDC), which collaborates with venture capital firms that target specific industries. Getting in contact with groups like the Canadian Venture Capital and Private Equity Association (CVCA) can also help you tap into networks that open up doors to venture capital funding.

Angel investors

Angel investors use their personal funds to support early-stage startups, typically contributing between $25,000 and $100,000. Unlike venture capitalists, angel investors often invest individually or in small groups rather than through large funds pooled from institutions. They often choose businesses that appeal to them personally and take a more hands-on role.

In addition, angel investors also bring invaluable contacts and experience to the table and may take on an advisory role, such as becoming a board member. Because they often come through personal or professional networks, angel investors may already know and trust you and your business vision.

Some key advantages of venture capital, private equity, and angel investors can include: no collateral required for funding, and investors may provide experience and business guidance.

Bank loans and lines of credit

Banks may fund your small business in the form of loans or lines of credit. A loan provides a lump sum of money, usually for larger, one-time expenses. You repay it with interest over a set period of time, typically through monthly payments (although other payment frequency options may be available). For example, a small business installment loan can help you upgrade equipment, invest in property, or refinance your debt.

On the other hand, 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. Offering greater flexibility than a loan, a line of credit only requires you to pay interest on the money you use.

BMO provides flexible loan solutions designed to support businesses at every stage, featuring competitive fixed or variable interest rates for added flexibility.

Some key advantages of lending at a bank can include: quick access to funds, retaining full ownership of your operations, and establishing or improving your business credit history.

Crowdfunding

Crowdfunding is the practice of raising contributions—typically small amounts from a large number of people—to help fund a project or business. It’s mostly done through online platforms and social media and often comes with regulatory and reporting obligations, but it is an option for business owners to build awareness and tap into a wide pool of individual funders.^{footnote 2 2} The most popular crowdfunding options include donation-based, reward-based, and equity-based.

Donation-based crowdfunding

With the donation-based model, investors donate money to a cause or project without expecting money or anything else in return.

Reward-based crowdfunding

This type of crowdfunding involves the promise of non-monetary rewards in exchange for contributions. Rewards can come in the form of a product, service, or some other perk. For example, an independent musician might offer signed copies of their upcoming album to those who contribute a minimum amount toward its production.

Crowdfunding rewards are also often tiered, meaning that higher contributions receive more valuable or exclusive benefits. When funding goals are not met contributions are typically returned to the backers.

Equity-based crowdfunding

In equity-based crowdfunding backers receive company shares in exchange for their investment. This model allows startups and growing companies to raise capital without taking on debt, while giving investors the potential to earn a return. However, it does require business owners to give up partial ownership of their company, which can impact their control and dilute future earnings.^{footnote 3 3}

Some key advantages of crowdfunding can include: can help businesses overcome funding barriers, raise capital quickly, validate their product or service in the market, and build an engaged audience.

Business incubators

Investors for business incubators will typically "incubate" new ventures for up to two years by providing access to office space, laboratories, and administrative, technical, or logistical support. There are many types of incubators available across different industries.In exchange for this support, incubators might expect a share in equity. They also may ask you to stick to a rigid development schedule and attend training sessions with management professionals, entrepreneurs, and other experts to help you develop your business. There is no central incubator organization in Canada, but there are resources available at BDC if you’re looking to find potential incubators in your industry. With a business incubator you can receive guidance from experienced mentors opening networking opportunities that can lead to even more funding.

Ways BMO can help

It’s important to be very clear about why you’re seeking financial support, both for your benefit and that of your potential funders. So, before applying for funding, it’s a good idea to develop a financial plan. When it comes to funding small businesses, BMO is here to help. Here are some resources to help you build the business you’ve always dreamed of:

Canada Small Business Financing Loan: Funding for startups and established for-profit businesses located in Canada with gross (or projected) revenues not exceeding $10 million.
Grants and funding for specific groups:
Funding for specialized industries: Thanks to our dedicated teams across a wide range of industries, BMO can offer small business owners specialized expertise and one-on-one support. Here are some examples of industries we support:
Trade Expansion Lending Program (TELP): If your business is looking to expand internationally, TELP can help.
BMO’s Business Loan Calculator: For any business owner wanting to stay on top of their finances, budget properly, and monitor what you owe, this calculator is indispensable.
Business cash flow guide: Use this guide to help prepare your cash flow forecast and keep you on track.

Ready to get started?

Explore BMO lending options

Compare Lending Options

6 tips for managing small business finances

Give your business the financial fresh start with these tips to stay in control of your small business cashflow.

How to get a business loan in Canada

Need funds for your business ASAP? If you're a small business owner, find out what types of financing are available and how to get a business loan.

Estimating upfront business costs and getting funding

Figuring out your upfront costs is the biggest step you need to take before you hit the streets in search of funding.

This article provides general insights into funding options that may be available to small business owners and is intended for informational purposes only.

This article does not constitute tax, legal, accounting, or other professional advice and is based on laws and administrative guidance that may change over time. Readers should not act on the information contained in this article without obtaining professional advice tailored to their particular circumstances. The options discussed should not be interpreted as recommendations, endorsements, or advice to pursue any particular approach.

The content is accurate as of the publishing date and is subject to change. While BMO has made reasonable efforts to ensure the accuracy of the information, BMO provides no guarantee as to the completeness of the content and will not be responsible for any losses or damages incurred as a result of reliance on this article.

Where applicable, the availability of funding is subject to eligibility requirements and required approvals. Funding for programs may also be subject to credit adjudication, which can depend on several factors.

For all external programs referenced, whether government‑run or privately administered, BMO does not own, operate, or control these programs.

Footnotes

^{Footnote 1 details 1}Based on eligibility. Tax advice should always be obtained from a tax professional.

^{Footnote 2 details 2}The suitability of crowdfunding will depend on a business’s model and applicable regulatory considerations.

^{Footnote 3 details 3}Equity crowdfunding is subject to specific regulatory requirements, and individuals considering this option should seek independent legal advice.