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Ever try to get a loan from traditional funding sources in Canada? Unless you own a house with plenty of equity or have an equivalent amount sitting in a term deposit to use as security, traditional lenders in Canada do not seem to be in any rush to lend to you.
If you are starting a new business what are your options if traditional lending sources are not in the cards? What non traditional funding sources are there for entrepreneurs?
Crowdfunding for Entrepreneurs
This type of financing is a great option when you have a specific entrepreneurial project or product. While the costs of entrepreneur crowdfunding, usually expressed as a percent of funds raised, are an important factor in determining what platform is best for you, do not forget to check into how much traffic the crowdfunding site gets and what particular markets they serve best.
Parents and family
Better known as the “Bank of Mum & Dad”, this funding option is fairly straight forward – “Mom, dad, I have a great, can’t-miss idea that I need a few dollars for.” At this stage it sounds great. Who could say no to their little entrepreneur? But what if the project goes sideways or just does not pan out the way you intended? Are you prepared for the awkward Thanksgiving dinner just after you tell your parents that you are not able to repay their $50,000? The option of borrowing money from mom and dad should always come with a warning – “Caution, Use Only In An Emergency.”
Angel investors cannot only be a source of funding, they can also bring a wealth of knowledge with them. For angel investors this is their business. Not only do you get access to funds, but you can also access their contacts and network. Sometimes angel investor contacts can be more valuable than the funding. The downside of this funding option is that the money and the contacts can come with a steep price – equity in your venture. Sometimes the equity they require will be greater than 50%. Your question will be, “Am I willing to give up control to see my project all the way through?”
There are many Federal and Provincial programs covering a broad spectrum of financing options for entrepreneurs. Various Federal programs include non-refundable grants, loan guarantees, wage subsidies and tax credits. There are a number of Federal and Provincial programs that are general (available to all entrepreneurs) and a number that are targeted to certain industries.
In addition to governmental grants there are also many corporate sponsors that provide start up funding for entrepreneurs. While some of these grants tend to be on the lower dollar range, they can certainly help get you started.
Regardless of the source for entrepreneur financing, each one comes with a price. Your challenge is to determine what your price is.
The Team at Manning Elliott can help you not just identify your financing options, we can also work through the various pro’s and con’s and costs of each of traditional and non traditional entrepreneur funding options.
Harvey Peters, CPA, CA is a Partner at Manning Elliott LLP. He provides accounting, taxation and advisory services, primarily to owner-managed private companies and not-for-profit organizations. To contact Harvey, feel free to call him at 604-714-3683 or email him at firstname.lastname@example.org.
The above content is believed to be accurate as of the date of posting. Tax laws are complex and are subject to frequent changes. Professional advice should be sought before implementing any tax planning. Manning Elliott LLP cannot accept any liability for the tax consequences that may result from acting based on the information contained therein.