How can I get the money I need to finance my venture?
Small Business-Arranging Financing
1. Personal Funds
2. Love Money
- from friends, family, associates (usually 90% of business start-up money)
- layout terms clearly beforehand-detail risks-form legal agreements
- most popular external source
A. Operating Loan -or line of credit
- extends credit to an arranged limit on an ongoing basis to cover day to day expenses (accounts receivable, payroll, inventory carrying costs, supplies, utility bills)
- Operating loans can have some restrictions-you may be prohibited from taking money out of the company at early stage-bank may veto purchases over a certain amountB. Term Loan
- loan for purchase of existing business or to acquire assets
- typically must be paid back in 3-10 years-term usually linked to lifespan of asset
** Both A and B are Demand loans-If bank feels you are in trouble, they can demand to be paid back
What does bank ask for in return?
- may ask for your personal guarantee as well as pledge of collateral. What is needed to qualify?
sufficient equity in business and strong personal credit rating
4. Government Sources
- most assistance is for businesses in more advanced stage
A. Business Improvement Loans
- new and existing businesses with gross revenue under $5 million may get term loan from chartered bank to purchase or upgrade fixed assets and have the loan guaranteed by the government under the Small Business Loans Act at a reasonable rate
- maximum loan $250 000 call (613) 954-5540
B. Business Development Bank of Canada (click for link)
- provides range of financial, management and info for small business
- term loans for private sector institutions
C. Provincial Financial Assistance Programs
Ontario- Ministry of Economic Development and Trade
900 Bay St Toronto ON M7A 2E1 (416) 325-6688
- involves equity participation in a start-up or growing business
- typically proven firm requiring 100,000+ with potential to earn 40- 50% on return
- most new ventures don't meet investment criteria
Association of Venture Capital Companies (click for link)(416) 487-0519
New Business has better chance of getting capital from small private venture capitalists called "angels"-or provincially supported venture capital programs.
- typically less than $50,000 where investor can earn more than conventional earnings
Problems associated with private venture capital
- may have to give up partial ownership/control
- additional funds may not be available
- investor may not have patience to wait for return
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copyright 2001 Karen E.Hamilton