5 Sources of Small Business Startup Financing in Canada

Many people dream of starting a business, but finding the financial resources to get going can be a real challenge. Enter business grants and financing.

In Canada, there are a variety of grant and funding programs for entrepreneurs. These can be used either to start a new business or to help an existing business grow and thrive. Business grants can be a great way to fund a project or cover certain types of expenses. In particular, business startup grants can help entrepreneurs get going by covering some vital startup expenses.

In this guide, we will look at the different sources of financing available for businesses in Canada.

Financial support for businesses in Canada

Canada is known for cultivating a business-friendly environment where various programs and resources are available to hopeful and established entrepreneurs. Business grants are just one of the many ways that the government and private sector support small and medium-sized businesses. These grants can provide the funding needed to help businesses grow, expand and continue to create jobs.

Funding sources for startups in Canada

If you are considering starting your own business, you have to determine what financial resources you will need to start and grow that business. Financing can be a challenge for entrepreneurs, but there are several sources of funding to help get started. Here are a few places to start:

1. Government grants

Government grants are an important source of funding for entrepreneurs who want to start a business. There are many grants to choose from, which can make it difficult to figure out which grant would be best suited to a specific business project. It is crucial to understand the differences among available grants.

T2inc’s tax accountants in Montreal understand the importance of government grants for entrepreneurs. Our experts have an in-depth knowledge of the different grant programs and can help you determine which financing solution is best suited to your business project.

Common mistakes to avoid when applying for business grants

It is common for companies to make mistakes when applying for grants. Some of the most common include:

• Not reading the eligibility criteria carefully
• Not providing all the required documents
• Not providing a detailed business plan
• Applying for grants that are not consistent with your company's goals and objectives
• Not following the application guidelines

2. Private funding

In Quebec and Canada, there are many sources of private financing to help entrepreneurs start a business.

BDC seed money

BDC offers a complete financing solution for starting a business. This funding can be used in a variety of ways: for working capital to supplement an existing line of credit, to cover marketing and start-up costs, for the acquisition of a franchise, etc.

Among other criteria, eligible businesses must demonstrate that they have been generating revenue for less than 12 months, are being set up in Canada for the first time, have a solid business plan, and have been in business for at least three years.

BDC loans for Indigenous entrepreneurs

Are you an Indigenous entrepreneur? You may be able to get a loan to help cover your business startup costs.

The BDC also offers loans to Indigenous entrepreneurs who wish to expand an existing business. These loans can be up to $350,000 and can be used in various ways: to acquire capital assets, to begin to export, etc.

To learn more about BDC business loans and how to make the most of them, talk to a corporate tax specialist.

Futurepreneur Canada

Futurpreneur Canada is the only non-profit organization that provides financing, mentoring and other support to young Canadian entrepreneurs between the ages of 18 and 39. If you are in this age range and meet the eligibility criteria, you could benefit from one of the following programs.

Futurpreneur Canada's Business Startup Program provides eligible young entrepreneurs with loans of $20,000 to start or purchase a business.

If you qualify, you may also be able to apply to the Futurpreneur Canada/BDC collaborative financing program for an additional $40,000, for a total of $60,000 in loans.

The Futurepreneur Canada Program for newcomers

It can be difficult for young newcomers to obtain startup loans because of their limited credit history, but Futurpreneur Canada steps in to provide eligible newcomers with repayable loans of up to $12,500 to start a business.

If you are young and have no business experience, but you want to start a business in Canada, hiring business accountants could be a smart move. Business accountants can help you navigate through Canadian taxation laws and regulations and achieve your financial goals.

Crowdfunding

Crowdfunding is a method of participatory financing that allows individuals or organizations to raise funds for a project using online platforms. This method of financing offers an alternative to traditional sources of financing (such as banks and venture capitalists) and is becoming increasingly popular among Canadian entrepreneurs.

Crowdfunding projects are often supported by an online community that believes in the entrepreneur's idea or vision, which can help build strong relationships between the entrepreneur and their potential customer base. In addition, crowdfunding can also help businesses validate their product or service before they even launch, allowing founders to gauge interest and demand.

There are several types of crowdfunding:

• Equity crowdfunding, where investors receive shares in the company or the right to a share of the revenues or profits of a specific product in exchange for their investment.
• Loan financing, which involves lending money to a business at relatively high interest rates. This funding model reduces the overall lending risk by distributing small amounts of money over many loans.
• Gift or reward crowdfunding, where a company sets a fundraising goal in exchange for a reward or receipt of the product or service being developed.

4. Venture capital

Venture capital is a type of investment in which one or more investors takes a minority stake in the capital of an unlisted company. The investor's main objective is to finance the development of innovative companies with high growth potential and to realize a significant return on investment when selling its shares.

With this type of investment, young innovative companies can benefit from access to equity capital at a stage of development when it is often difficult to obtain bank loans. Venture capital at the startup phase allows the entrepreneur to benefit from funds without having to provide guarantees. This helps to strengthen the financial structure of the company without putting it in debt, which provides security to creditors.

In addition, bankers are often willing to financially support a company with a good level of equity. Venture capital reinforces a company's credibility and makes it easier to obtain loans. Venture capital can also include managerial or technological support and advice.

5. Business incubators

Business incubators focus on helping startups in specific industries (such as tech) in various stages of development get to market. Entrepreneurs who are just starting out can face financial and logistical barriers that can slow their progress – incubators offer a solution by providing a collaborative work environment where companies can share space and resources to reduce operating costs.

Incubators also provide marketing, financing, and business development support, providing new entrepreneurs with access to experienced professionals and specialized advisors. Incubators allow entrepreneurs to better understand market needs and develop effective business plans.

In general, companies that have been incubated are more likely to survive over a five-year period, since they have had the opportunity to test and refine their product or service before launching full-scale production. Incubators also help companies gain exposure and connect with potential partners, allowing them to quickly reach target markets and grow faster.

Choose the right business financing method with T2inc

The Canadian government provides many financing and grant possibilities through various organizations to help entrepreneurs in all sectors successfully launch a business.

There are also numerous private sector programs that can help your business succeed and grow.

At T2inc, Canadian business taxation is our specialty. Contact us now to help you find the right financing solution and get your business off to a great start!