Women's Small Business Startup Loans – As a business owner, you have many financing options to choose from, and many business owners find it difficult to ask for financing for their small business. Knowing how to talk to creditors and access your company’s finances is key to business success. Developing a good relationship with one or more lenders ensures that you have a financial partner there to help you every step of the way – believe it or not, lenders want to help you!
Our team of experts are here to provide personal support and guide you to the best options for your needs. We’ve put together information about the different types of funding available and what you need to know to get the money you need. Here are a few tips to get you started.
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You need to understand how lenders evaluate you and your business. Most lenders use the 5 C’s to make lending decisions:
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You will need to demonstrate that your business can generate enough cash to repay the loan. If you are a startup, a solid business plan that shows financial projections is essential. If you already have a company history, your lender will review past financial statements to check this.
Are you able or willing to invest your money and time in your venture? First, your personal worth and contribution show lenders that you are serious.
The rate of interest charged, the length of the repayment period, and other requirements will be discussed. Be prepared for lenders to request an annual or semi-annual review of your company’s performance once you receive a loan.
In some cases, lenders will use your company’s assets or assets such as company cars or equipment as collateral if the loan cannot be repaid.
Financing Your Business
Do you have management skills and business experience? Your first impression counts a lot. Dress appropriately when you meet with your lender and come prepared.
Be specific about what you are asking for. How much money do you need and what will you use it for? Do you buy the equipment yourself? Updating technology? Hiring employees? Buying multiple listings?
Your level of business, the amount of money you need, and the purpose of the loan should be clear. Understand the expected costs and provide an explanation of the loan application.
Equity capital is the amount of money that you and your partners put into the business or raise from other investors. Equity is not debt. While investors share profits (and losses), their investment is not a loan. Be sure to consult with your attorney and accountant before entering into any type of equity agreement—it could have a major impact on the future of your business. The following are types of equity financing:
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Personal savings, securities, real estate, and other personal assets are your most obvious sources of income, and friends and relatives can provide additional financing. In most cases, the small business owner has to take the biggest share of the risk by making the biggest investment.
Banks and other lenders have rules about the amount of investment they require before they will lend money to your business. This is sometimes called the debt-to-equity ratio, and it varies depending on the type of business.
If you can’t provide all the equity capital you need, you can find partners willing to invest in your business. You always share ownership with your partners, including profits and liabilities. In most cases, your partners will also want to have a say in how the business is run.
If you don’t want to share decision-making authority, you can take unlimited partners, sometimes called silent partners. They contribute money to your business without participating in the management or control of the partnership. If you are considering a partnership agreement, be sure to seek legal advice.
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If you have incorporated your business as a private or public corporation, you can take on shareholders to support your business. Shareholder investments are complex—be sure to seek the proper legal advice from an experienced attorney and have a shareholder agreement.
As your business gets bigger and more successful, a public share offering can be a great way to raise money.
You can raise money by asking your employees to invest in your business by making a partnership offer to your best employees or by selling stock to your employees as a form of profit sharing (if your business is incorporated).
Employees can be a great way to increase equity and can improve the work habits of your employees – they will benefit from your shared success. The downside is that it can be difficult to remove or replace employees who have invested in your business if they are unproductive or uncooperative.
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Venture capital firms provide equity financing to businesses, typically high-risk businesses with high potential. Most venture capitalists plan to liquidate all or part of their capital gains within five to ten years—they are not lifetime investors.
Most venture capitalists will not want to be involved in your day-to-day operations, but they will want representation on your board of directors.
Debt is the money you borrow for your business. It must be paid with interest. Lenders like banks and credit unions don’t share in your business’s profits (like investors do), but they have to be paid back no matter what—even if it’s not profitable.
Large purchases such as land, buildings, and equipment are often financed with a combination of a loan and a business term loan, sometimes called a permanent loan.
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A business term loan can last anywhere from one to 15 years, depending on the useful life of the asset you are buying. If you cannot repay the loan, the asset you are buying will be repossessed by your lender.
If your business doesn’t have a sales history, or you operate in a high-risk environment, you may find it difficult to get regular financing. But don’t worry—there are other options.
Personal support is sometimes called “Bootstrapping”. Investing your savings in your business will give you the freedom to use them however you choose. It will make your business more attractive to potential investors.
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Sometimes called “love money,” investments from family and friends have many advantages: they won’t affect your credit rating, there are no service fees, and they usually come with interest or very low interest. But be careful – they can be a source of tension in your relationship.
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An unsecured loan will give you access to money whenever you need it. It can help solve short-term cash flow problems, business expansion, or other expenses. You can often negotiate payment terms and interest. A good credit history and a good relationship with your bank will play an important role in your negotiations.
Use credit cards wisely—they usually have very high interest rates. Use only short-term cash flow, not long-term financing. Responsible use of a credit card can help you build a good credit history and provide temporary access to cash when you need it.
Also known as crowd-sourcing, crowdfunding can help you access loans with small amounts contributed by a large number of people – anyone can be a potential lender. Before starting a crowdfunding campaign, make sure you read the fine print. Pay attention to how much the funding platform keeps in fees.
Asking your customers for a deposit before you start work can give you a large amount of money to secure the raw materials for the project before you start. Some companies combine upfront funding with crowdfunding to secure their venture capital before starting production.
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Factoring means selling your accounts receivable (money owed by customers) to creditors. They purchase your outstanding customer invoices as collateral for financing. Factoring usually only favors established businesses.
You have two options for factoring: borrow from accounts receivable, but retain collection responsibility, or sell your accounts receivable responsibility.
Entrepreneurship or small business competitions are organized by non-profit organizations, business corporations, or government agencies. It is usually a business plan competition but may be specific to other aspects of your business, such as environmental management or innovation.
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A line of credit (often called a HELOC) allows you to borrow against your home’s equity (the current market value of your home, minus the outstanding loan balance), using your home as collateral.
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Canadian federal, provincial, and municipal government agencies can help your business with grants, loans, or other forms of funding. Finding and applying for a government grant or loan can be a time-consuming, complicated process. Be aware that you may not find any government funding programs that match your current business needs.
There are many misconceptions about government grants for small businesses. The government doesn’t give out free money – they have created government-funded programs to help Canada’s economy. Some programs are available to businesses across Canada, while others are restricted to certain types of businesses or regions. Most funding programs have very strict spending and reporting requirements. Read more on our Business Resource blog.
The Government of Canada has a list of business grants and subsidies on their website. Make sure you do your research to make sure your business is a good fit before you apply.
Always do your research (and contact us!) when you come
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