When starting a new business, securing the right amount of funding is one of the most critical steps in turning your idea into a reality. Before you can seek funding, it’s essential to have a clear understanding of how much capital you need and how you plan to allocate it.
Choosing the right funding source is not just about the amount you need, but also about matching the funding option to the intended use — as well as to your business goals. Some funding sources may be more suitable for long-term investments, while others are ideal for short-term operational costs. Additionally, factors such as your business stage, risk tolerance, and financial capacity will influence which options are best for you.
Here are six ways to identify potential sources of funding.
Option 1: Minimize how much you need
Carefully check how much capital you require, as lowering the amount makes it easier to raise funding, and can help guide you to the correct method. There are a number of options here:
- Borrow equipment before buying, leveraging your contacts and network to meet short-term needs
- Buy secondhand equipment instead of new
- Lease rather than buy equipment and vehicles, and seek professional advice on the implications — tax and otherwise
- Limit the number of products at the launch time to lower start up production costs
- Use lower-cost premises
- Buy only the quantities of materials or inventory that you absolutely need
If for whatever reason you’re still short of money, self-funding your business could be the answer — shortcutting your way to starting up. For example, you could decline to take a salary for a period of time, find friends and family to work in the business for free, sell personal assets to raise cash, and call in favors from your network.
Option 2: Start with your own cash
Using your own money to fund your business is often the simplest and most straightforward option. It demonstrates your commitment to your business idea, and signals to potential
investors or lenders that you are willing to take on personal risk. Common sources of personal cash include savings, your personal bank accounts, or any equity you may have locked up in property or assets.
Another option is to borrow from friends and family. While this can be an accessible way to raise initial funds, it comes with personal risks. If the business fails, it may make things awkward at the next family gathering.
Option 3: Partner with others
Collaborating with other businesses can be an effective way to raise capital while sharing the risks and rewards. If you’re considering entering a new market (such as exporting), partnering with an established business in that market could provide you with the infrastructure and resources you need to grow.
When considering a partnership, assess the following:
- A partner can help provide the capital or infrastructure you lack, allowing you to expand more quickly
- If your partner has experience in areas where you’re lacking — such as marketing, supply chain management, or sales — their knowledge could help you avoid common pitfalls
- Partnering with a business that already has a presence in the target market can allow you to reach new customers without the need of a costly market entry strategy
- Both businesses share the risk and reward, which can reduce the financial pressure on any one party
Option 4: Grants and subsidies
It’s always worth checking out what the federal and provincial government can offer in terms of financial support for your business. Grants are often non-repayable, and can be used for specific purposes — such as research and development or hiring new employees. Tax breaks and incentives can help reduce the tax burden on your business, while wage subsidies can offset employee salaries.
Option 5: If it makes sense, borrow
Borrowing is always a viable option for new businesses. Coast Capital is here to help, so reach out to discuss your financing options with us. We can also advise you about other lenders to consider, such as finance companies, supplier credit, and supplier finance. Make sure you’re aware of all the obligations and costs before you proceed.
Investigate emerging funding sources, such as crowdfunding — where groups of people pool small amounts together as an investment or down payment on a future purchase. This may suit your business model.
Option 6: External capital
If your new business has a bright future, it’s possible that outside investors may be prepared to contribute initial capital. Angel investors typically seek business opportunities with promising growth. You can search online for local providers, but often funding will be sourced from local entrepreneurs, councils, corporate investors, incubators, and accelerators.
Next steps
- Assess how much capital you need for your business and explore ways to minimize this amount — such as borrowing equipment, leasing, or buying second-hand materials
- If you can, consider using your own savings or assets to fund your business, as it’s typically the most cost-effective option
- Evaluate potential business partners who can help provide infrastructure, capital, or expertise to help you grow more efficiently
- Research government funding options that may include grants, subsidies, or tax breaks to reduce your financial burden
Consider a combination of funding sources to ensure you have enough capital for a contingency fund, so you won’t need to seek additional funding immediately after launch. Connect with a Coast Capital Business Advisor about how we can help your business grow and succeed.
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This content is for general information purposes only. It is not to be relied upon as financial, tax, or investment advice or guarantees about the future, nor should it be considered a recommendation to buy or sell. You should consult your own professional advisor for specific financial, investment, and/or tax advice tailored to your needs to ensure that individual circumstances are considered properly and action is taken based on the latest available information.
