Once you have determined how much capital you will need to start or grow your business, you must choose a method of raising the capital. The appropriateness of the source of funding depends on the intended use of the funds, the amount, the alternatives, and whether the purpose and source of the funds match.
To help you decide how to raise money for your business, consider these six steps.
Step 1: Minimize the amount of money you need
Look carefully at how much money you need, as lowering the amount makes it easier to raise money and guides you on the right approach. There are several actions you can take, such as:
- Consider borrowing equipment before buying, making the most of your connections and networks for short-term needs
- Buy used equipment instead of new
- Leasing rather than buying equipment and vehicles (seek professional advice on impacts, taxation, and more)
- Consider limiting the number of products in the early stages of startup to reduce initial start-up production costs
- Search for low-cost venues – you may not be able to launch your product at the ideal venue.
- Buy only the items or inventory you need to avoid overstocking
Step 2: Start a business with your funds
In the best case, you have enough cash reserves to cover all your expenses. Your funds are usually the lowest cost funds you can get, but be sure to consider your budget and savings plan.
Step 3: Collaborate with others
Are you able to partner with other business owners or companies? If you want to enter the export market, one option is to finance the required infrastructure, and another option is to find an existing export business that you can work with. ABA strategic alliance with a partner may benefit both companies in the short and long term.
Step 4: Borrow the required funds, where reasonable
Okay, that’s right, borrowing is one of those steps, no surprise. Key options include:
- Discuss your financing options with the bank
- Other lenders worth considering include finance companies, supplier lines of credit, or supplier financing. Make sure you understand all obligations and costs before proceeding
- Research emerging funding sources such as crowdfunding, which brings together small sums of money from a group of people to invest or make a down payment on future purchases. This might suit your type of business.
At the end of the day, the best sources of funding are likely to be those that allow you to grow your business without incurring excessive costs.
Step 5: Angel Investors and Venture Capital
If your new business has a bright future, outside investors may be willing to put in initial capital at any time.
Angel investors typically look for promising business opportunities. You can search for local providers online, but funding usually comes from local entrepreneurs, councils, corporate investors, incubators, and accelerators. The National Angel Capital Group might be a good place to start.
Venture capitalists tend to be investment firms that prefer mature companies. Check out the Canadian Venture Capital and Private Equity Association (CVCA) website for more information.
Step 6: Grants and Subsidies
The support that the government can provide is worth considering. This type of funding mainly comes in the form of allowances, tax breaks, wage subsidies, or loan guarantees. E.g:
- Government of Canada Corporation Grants and Financing Loans
- Canada Small Business Financing Loan Program
- Canadian International Innovation Program (CIIP)
At the end of the day, the best sources of funding are likely to be those that allow you to grow your business without incurring excessive costs. Consider combining multiple sources of funding to ensure you have enough money to build an emergency fund so you don’t need to seek additional funding immediately after starting your business.
Finally, consider enlisting the help of an outside expert to evaluate your options, especially if it involves taxes or long-term debt.
If you would like to discuss your business banking needs, please feel free to contact your TD Relationship Manager or find an Account Manager near you.