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5 Ways to Finance Your Small Business
Learning Objectives
1. Understand the different types of financing available
• Debt, Self-funding, Equity, Grants, Alternatives
2. Discover the common sources of each, and ways to access them in Alberta
3. Understand how your business will benefit from a financing plan
Let’s get to know you and your business idea
About Business Link
Who We Are
Alberta’s Small Business Hub
• Non-profit organization funded by the Government of Alberta and the Government of
Canada
• Helping Alberta entrepreneurs start, run and grow their own businesses since 1996
• Support for all stages of business: pre start-up, early stage and growth
• Our goal is to provide support services that will drive the growth and resilience of Alberta
businesses
What We Do
Business Advisory
• One on one advice and information on everything from planning, to financing and marketing
• Long term business coaching for small business owners
• Referrals and information on small business resources in Alberta
Business Support Services
• Secondary market research assistance
• Expert Program: talk to a lawyer, accountant, or other business professional
• An Interactive Business Plan Builder and business plan reviews
• Business training and support programs
Business Education
• Live webinars and virtual workshops
• Online resources: checklists (startup, financial management, marketing), templates, recorded webinars, and more!
• Networking events and opportunities
• Regular newsletters, blogs, and client features
What We Do - Special Programs
Indigenous Services
• From startup to expansion, our resources are tailored to meet the unique needs of our Indigenous clients
Indigenous Procurement Support
• Alberta’s single point of contact for procurement-ready Indigenous businesses
Immigrant Entrepreneur Program
• Develop and create a supportive business environment across Alberta that allows immigrant owned small businesses to thrive
We Make a Difference
*2019-20 fiscal year
Sources of Financing
Banks and other financial institutions
Personal funds
Money from friends or relatives
Money from other businesses
Trade credit from suppliers
Capital leasing
Gov’t loans, grants programs
Equity investors
Other
Graph Source: Statistics Canada, Survey on Financing and Growth of Small and Medium Enterprises, 2014.http://www.ic.gc.ca/eic/site/061.nsf/eng/h_03018.html#figure4-1-1
Additional 2017 Study:https://www.ic.gc.ca/eic/site/061.nsf/eng/03086.html
Types of Funding
Business financing comes in different forms. We will explore these 5:
• Debt – Money received that must be returned with interest
• Equity – Money received in exchange for a portion of the company profits into the future (ownership)
• Grants – Money received and not required to pay back, but given for some specific purpose
• Crowdfunding – Money received from potential customers to help you start operations
• Alternate Sources
Debt Financing
Debt Financing
Debt financing is money given by the lender and repaid by the borrower on some negotiated schedule and includes a rate of interest
• Commonly paid on a monthly basis
Debt Financing
• Commercial banks (and credit unions) are the primary source of debt financing
• Term loans – structured, set payments and lower interest
• Credit cards – flexible limits and payments but much higher interest
• Lines of credit – somewhere between
• Government funded lending programs
• Short term money lenders
Banks
Banks are very risk averse
• Will require collateral, some personal investment
• Prefer financing hard goods like equipment or property
• May present more lending opportunities for smaller amounts
• Lines of credit, credit cards, or re-mortgaging
• These can be valuable options for startup and small business
The 5 Cs of Bank Lending
1. Credit Score (your history)
• Bad score = no loan
2. Capital
• How much of your own wealth will you contribute
3. Collateral
• Items of value that can be offered if the terms of the loan can't be met
The 5 Cs of Bank Lending
4. Capacity
• Can the business earn enough to repay?
• Is the idea sound?
• Show this with thorough financial projections
5. Character
• Show some signs of responsibility in your life
Common Requirements for Loan Applications
New businesses in operation for less than 2 years should be
prepared to provide:
• Business plan
• Financial projections or statements
• Personal income statements/net worth and Business Assets
• Credit Score
• Industry served (some banks don't serve specific industries
such as retail and transportation, etc.)
Each institution will have a
different process. Be prepared to
tailor applications as necessary.
Common Requirements for Loan Applications
Businesses in operation for more than 2 years should be prepared to
provide:
• Business Plan and Financial projections
• Credit Score
• Last 2 years of Corporate Notice of Assessment
• Last 2 years of Personal Notice of Assessment
• Last 2 years of year end Financial Statements
Each institution will have a
different process. Be prepared to
tailor applications as necessary.
Government Lending
Business Development Bank
• Government-owned bank providing loans to entrepreneurs
A financial institution and a financial corporation owned by the Province of Alberta.
• Visit an ATB Entrepreneur Centre
• Calgary
• Edmonton
• Lethbridge
• Grand Prairie
Government Funded Loan Programs
Government funded programs
• Administered through non-profit agencies
• Come with support
• Require you meet certain criteria (not
available to every business)
Short Term Money Lenders
• Often used for emergency funding (e.g. meeting payroll)
• Watch out for high interest rates and use this option sparingly
• Examples of short term lenders
• Alberta Business Loans
• OnDeck
• Lending Club
• Lendified
• Lendmart
Equity Financing
Equity Financing
Equity financing is money given by the investor and repaid through
distributing the profits of the company, based on how many shares
they have
• These payments are called dividends
• The shareholders vote on when and how much dividends will be
Equity Financing
Selling some ownership of your business (a share of the profit)
• Company must be incorporated to sell equity to others
• Typically, more available for scalable companies
• Owning some intellectual property
• Developing some innovation
• Could involve selling shares to friends and/or family
Your Equity
When you put your own money into starting a business, you are financing that
business with equity. This has many advantages:
• Applies to both corporations and sole proprietorships/partnerships
• There are no restrictions on the way the money is spent
• No repayment schedule (gives you more working capital)
• Can be leveraged to receive other financing
• No need to convince anyone else to give the money to you
• Though you should convince yourself!
Your Equity
Strategies for investing your own funds
• Start Small – Explore the concept of minimum viable product
• Early sales can be reinvested to attract more financing interest
• Save – Every little bit helps. Start saving now to create your own investment fund for
your business
• Create a backup plan – What would you do if the business fails and you lose the
money? You need to have an answer to this question before you invest your savings
Venture Capitalists and Angel Investors
• Organizations or individuals interested in assisting startups with high growth
potential
• May provide funding for early stage, innovative businesses
• Look for scalability
• Not a very common financing opportunity for many entrepreneurs
How to Find Equity Investors
• Look to your friends and family
• Corporations offer a structure for people in your network to contribute to your
business, and share in its success
• Talk to a lawyer specializing in incorporations about how to structure this
• Professional venture capitalists—Venture Capital Association of Alberta
• Start Alberta – www.startalberta.com
Grant Financing
Grant Financing
Grant financing does not need to be repaid, but will require a report to
be filed that verifies some agreed-to outcome.
• This is why grants have very specific criteria which recipients must meet
Grants
Government supplied funding that you don’t have to pay back
• Designed to help government departments achieve their aims
• Have specific criteria that must be met
• Typically fund a specific cost or activity
• Come with the need to provide some measured result:
• Debt – provides interest
• Equity – provides dividend
• Grants – provides some measurable outcome (i.e. job growth, emissions reduction)
Areas of Granting Interest
Export• Export
Development Canada
• CanExport
Innovation• NRC IRAP
• Alberta Innovates
• Innovation Canada
Arts• Alberta
Foundation for the Arts
• Canada Council for the Arts
• FACTOR Canada
Agriculture• Canadian
Agricultural Strategic Priorities Program
• AgriInnovate
Environment• Clean Growth Hub
Types of Grants
• Loan Guarantees – easier to acquire loans
• Wage Subsidies – reduce the cost of your payroll
• Tax credits – pay less tax
• Capital investments – sell part of the company
• Specified funds – to reduce the cost of certain expenses
• Federal Programs and Provincial Programs
Innovation Grants
An innovation start-up is a business developing a new technology
that is usually in the research and development to scaling stage.
• This is an area that receives much government interest and
support
• Is your business innovative?
Grant Proposal Tips
• Grants are specific. Identify which grant(s) will be most beneficial for your business
• Carefully read and follow the application process
• Pay close attention to any literature describing what outcomes the granter is looking for
• Ensure your company is a natural fit, don’t try to mould your operations to fit a grant
• Connect with the grant Program Manager
• Contact Business Link for advice
Crowdfunding
Crowdfunding
A way for large numbers of people to donate a small amount of money for a
business or project
Typically requires:
• A strategy for promotion
• A video pitch asking for support
• Offering 'rewards' for different contributions
• Marketing and communicating with donors
Crowdfunding
Money raised through crowdfunding doesn’t need to be repaid
• Often is tied to a ‘reward’
A good opportunity to conduct market research
• How well is your message connecting with your target market?
Setting a realistic goal can move you toward more substantial financing opportunities
• A successful campaign is a good demonstration of your business’s viability
Crowdfunding
ATB Boostr
• Supports Alberta based businesses
• Rewards based, fixed plans
Kickstarter
• Supports business, arts, design, film photography and publishing
• Rewards based, fixed model
Alternate Financing Sources
Trade Credit
• Credit extended to you by suppliers
• Tends to be easy to access once you’ve built a history
• Only used to receive goods or services provided by suppliers
• Examples:
• Buying inventory items but paying for them 60 days later
Pitch Competitions
• Public (typically onstage) presentation of your business, with judges voting for a
winner based on varying criteria
• Entry is commonly restricted to particular target groups
• Prizes are usually cash or services
Pitch Competitions
• $100,000 prize
• Open to Canadian companies
• $25,000 prize
• Open to AB post-secondary students
• First time entrepreneurs
Pitch Competitions
• Require lots of preparation
• Competitive nature means funding should not be counted on
• Create a strategy
• Strongly defined Unique Selling Proposition
• Perfect your “elevator pitch”
• Develop a Pitch Deck
• Contact a Business Link strategist for help and resources
Alternate Financing Sources
Factoring
• Turning outstanding account receivables into cash
• 1–3% of invoice charges
Purchase Order Financing
• Turning orders into money to fulfill those orders
Inventory Financing
• Using inventory as collateral to get a line of credit
Next Steps
Create a financing plan
Not all of your start-up funding needs to come from one source.
Determine which forms of financing are most accessible for you, and what
combination of money sources you will seek. For example:
• 25% personal savings
• 55% bank loan
• 20% equity sale to friend
Create A Financing Plan
• Start small, but plan for the future
• Your financing might become available or accessible at different times
• Your financing plan should help you prepare for emergencies
• How will you get access to cash if you face a crisis (e.g. COVID-19 pandemic closures)
• Get a line of credit whenever you qualify
• If cash flow becomes tight, options for financing can be limited!
Next Steps
• Finish your business plan
• Plan your approach
• Consider “stacking” funds from different sources
• Start saving your own money
• If you do it right, the next time will be easier
• Talk to a Business Link Strategist
Contact Us!
Mark Shields – Business Strategist
• Phone
587-392-7955
Sign up for the Business Link Connector businesslink.ca/newsletter
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