start a business.-It’s never a good business idea to put all your eggs in one basket. This is especially true when it comes to raising capital for your new company. Diversifying your sources of funding will not only help your startup weather any downturns, but it will also increase your chances of obtaining the right financing for your specific needs.
Keep in mind that bankers do not consider themselves to be your primary source of capital. And demonstrating that you’ve looked into or used a variety of funding options shows lenders that you’re a proactive business owner.
Whether you choose a bank loan, an angel investor, a government grant, or a business incubator, each of these sources of funding has its own set of benefits and drawbacks, as well as the criteria they will use to assess your company.
Here’s a rundown of seven common start-up financing options.
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1. Investing in yourself
When beginning a firm, your first investor should be you—either with your own money or with assets as collateral. This demonstrates to investors and bankers that you are committed to your project for the long term and willing to accept risks.
2. Have a strong desire for money
This is money that has been loaned to you by your spouse, parents, family, or friends. This is referred to by investors and bankers as “patient capital,” or money that will be repaid when your company’s profits rise.
You should be wary of the following when borrowing love money:
- Family and friends rarely have a lot of money.
- They might be interested in owning a piece of your company.
- It’s never a good idea to treat a business relationship with relatives or friends lightly.
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3. Entrepreneurial capital
The first thing to remember is that venture financing is not for every business owner. Venture investors are searching for technology-driven enterprises and companies with significant growth potential in industries like information technology, communications, and biotechnology, so you should be aware of it right away.
Venture capitalists invest in a company in order to assist it carry out a promising but risky concept. This entails handing over portion of your company’s ownership or stock to a third party. Venture capitalists also demand a healthy return on their investment, which is often realised when the company begins selling stock to the general public. Make careful to find investors with relevant experience and knowledge for your company.
BDC has a venture capital team that invests in cutting-edge businesses that are strategically positioned in a growing market. It invests in high-growth start-ups, like most other venture capital firms, but prefers to focus on substantial interventions when a company need a large sum of money to establish itself in its market.
4. Angels
Angel investors are typically rich individuals or retired executives who make direct investments in small businesses controlled by others. They are frequently industry leaders who provide not only their experience and network of contacts, but also their technical and/or management expertise. Angel investors often invest between $25,000 and $100,000 in the early phases of a startup. Larger investments, in the order of $1,000,000., are preferred by institutional venture capitalists.
They reserve the right to oversee the company’s management procedures in exchange for risking their money. In practise, this usually entails a seat on the board of directors as well as assurances of transparency.
Angels want to maintain a low profile. To meet them, you must contact specialised organisations or conduct an internet search on angels. The National Angel Capital Organization (NACO) is an umbrella organisation that aids in the development of angel investor capacity in Canada. You can look through their member directory to see who you should contact in your area.
5. Entrepreneurial incubators
Business incubators (also known as “accelerators”) primarily serve the high-tech industry by assisting fledgling enterprises at various phases of growth. Local economic development incubators, on the other hand, focus on topics such as employment creation, revitalization, and hosting and sharing services.
Incubators frequently encourage future firms and other start-ups to share their facilities, as well as their administrative, logistical, and technological resources. An incubator, for example, can share the use of its facilities with a fledgling business so that it can develop and test its products more affordably before going into production.
The incubation period can take up to two years in most cases. When the product is ready, the company normally leaves the incubator’s grounds and goes into industrial production on its own.
Businesses that receive this type of assistance are frequently in cutting-edge fields like biotechnology, computer technology, multimedia, or industrial technology.
MaRS, a Toronto-based innovation cluster, maintains a list of business incubators in Canada, as well as links to additional resources, on their website.
6. Aid from the government
Government entities may be able to provide your business with funding in the form of grants and subsidies. The website Canada Business Network has a comprehensive list of federal and provincial government programmes.
Criteria
It’s not easy to get grants. There may be a lot of competition, and award requirements are often very strict. Most grants require you to match the monies you are awarded, and the amount required varies significantly depending on the grantor. A research grant, for example, may just need you to raise 40% of the total expenditure.
In terms of energy, you’ll need to provide:
a comprehensive explanation of the project
An explanation of your project’s advantages
A complete project plan with all prices included
Details on key managers’ relevant experience and background
When necessary, filled-out application forms
The following criteria will be used by the majority of reviewers to evaluate your proposal:
Significance \sApproach \sInnovation
Evaluation of competence required for the grant
The following are some of the issues that candidates face when applying for grants:
The study/work is irrelevant.
Geographical place that is ineligible
Applicants fail to communicate how important their ideas are.
The plan lacks a compelling rationale.
The research strategy is disjointed.
There is an excessive quantity of work, and the funds aren’t matched.
7. Bank loans
For small and medium-sized firms, bank loans are the most prevalent source of capital. Consider the fact that every bank has its own set of benefits, whether it’s personalised service or tailored repayment. It’s a good idea to browse around for the bank that best suits your needs.
In general, bankers prefer enterprises with a proven track record and outstanding credit. It’s not enough to have a great concept; you also need a sound business plan to back it up. In most cases, start-up loans will also require a personal guarantee from the business owners.
Entrepreneurs in the early stages of their business, or in their first 12 months of sales, can apply for start-up financing from BDC. You might be eligible to defer the principal payments for up to a year.
