23.02.2022 09:30

Finances For Small Businesses: A Complete Guide

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Owning a small business is rewarding. Imagine being the one to ‘call the shots’ as you manage your small business with the help of a small business finance program. In the end, you’re doing something you love and have passion for.

Now, for those in Canada who want to get a small business loan to kickstart their small business ideas, you’re at the right place. Stay tuned. 

This guide helps you know different sources for a small business loan in Canada.

What Are the Best Sources of Finance for Small Businesses?

Here we’ll explore four primary sources to seek finance capital for your small business idea.

They include:

  • Debt Financing,
  • Equity Financing,
  • Equity Financing for Existing Businesses, and
  • Canada Small Business Financing Program (CSBFP).

It’s time you explore each in detail, see that below.

1. Debt Financing

Debt financing is a common source of finance for small businesses in Canada. It involves you borrowing some money for your business. You have to pay back the money in a given time.  

Debt financing has several divisions, which include:

Line of Credit – Also known as an operating loan, a line of credit is a service that gives your small business some money to run daily expenses. That said, you replenish your line of credit by making payments towards it.

Credit Card – This is a typical short-term loan in Canada. It allows you to make purchases within your record limit and repay them later. Therefore, you can use it to calculate your daily spending and expenses.

Business Term Loan – This type of loan offers medium to long-term financing options. These options cover various costs from purpose financial, capital equipment, among other services.

Leasing – Unlike loans, leasing gives you a long-term plan in the form of rental. Hence, after the lease ends, you no longer own the asset. Although, you can purchase it at the residual price.  

Supplier Credit – In this case, suppliers or manufacturers offer their products at a reasonably low price, and you pay the balance at a given interest within a specific period.

2. Equity Financing

Equity financing accumulates from either investors or savings. In fact, small business loans in Canada are often funded by these people. They supply the funding for the capital of small businesses. In turn, these outside investors get a percent of equities from your company in return for their monetary investment. 

To persuade such investors into your small business, you need enthusiasm in what you’re doing, character, and talent or hard work. Since you have no track record, you have to show up and persuade them.

When persuading investors, you explain your small business model, how they can benefit from the business, and why it's worth their investment.

Equity financing is divided into:

Personal Savings – Most small business entrepreneurs start their businesses using their savings. Suppose investors notice that you’re investing your money in your business that woos them. They’re sure of a good outcome in the form of ROI.

Love Money – This is money you get from relatives or family members. As a small business owner, investors hardly trust you. As such, you turn to your family or relatives for financing. They can offer to finance on an equity basis or debt you pay as per your ROI (Return on Investment).

Government – In Canada, the government supports small businesses using small business grants Canada. So, you can apply for these small business grants Canada to boost your business. The race to secure grants is usually competitive. Therefore, you need good application skills to secure them.

Informal Investors – Seasonal professionals are willing to invest their money into promising small business ventures. They actively participate in any business they venture into. To access informal investors in your area, simply talk to your lawyer or advisor.

3. Equity Financing for Existing Businesses   

Once your business gains small traction, you have the chance to raise extra money for faster expansion. In this stage, you can go for equity financing. It's readily available in the following additional sources;

Retained Earnings – You can do this by paying for your business's continual growth using the initial profits you make. Again, you can combine both retained earnings with equity and debt financing.

Venture Capital – This is the act of targeting high-tech sectors. One example is the online personal loans Canada. However, you may find that most venture capitalists invest where they see value and potential. Also, they expect a healthy return where they invest.

Going Public – Disclaimer: this applies to fast-growth companies. It entails selling equity interests in your company to willing investors. In this case, you need to have the best business account Canada. You can sell equity interest in Canada through a stock exchange or brokers.

4. Canada Small Business Financing Program (CSBFP)

This is a government initiative that seeks to help small businesses in Canada. It offers you working capital to support your business.

Good enough, you’ll only pay 2% of the loan's value to register. Although, you can use the loan to pay this amount and later get increment pay.

The Canada Small Business Loan Program only offers loans amounting to $1 million. They don’t offer anything above that to small business owners. Of importance, the program covers only businesses with gross annual revenue below $10 million.

If you select this program, you must apply for a small business loan at a financial institution. The initiative aims to assist small businesses in Canada grow without challenge. If the institution where you made your application approves the loan, the government reimburses 85% of the amount. 

Final Thoughts on Finances for Small Businesses

You have many options in Canada to seek finance for your small business. Thankfully, the choices above help you run your small business finances smoothly.

Being a small business owner, what’s on your plate is already enough. The last thing you want to worry about is the delay with access to funds.

Taking charge of your small business finances should never be an afterthought. Statistics show that an average of 50% of Canadian small businesses die prematurely due to financial challenges.

Therefore, managing your business finances, term loans, and other small business finances is advantageous to Canadian small business owners.

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