What you think is what you get

Think outside the bank: Alternative funding options for Canadian businesses

Are you an aspiring entrepreneur or newcomer to Canada, looking to turn your business idea into reality, but traditional bank loans are out of reach? Here are some alternatives to the banks for starting or growing your business in Canada.

Bootstrapping

Often, the ideal scenario is to use your capital, however small, for a jumpstart and then let the business feed off of its revenue.

Bootstrapping has become quite popular, especially because starting a new business is cheaper than ever.

Pros
  • You can start with minimum capital
  • You retain all the equity and control
  • You don’t have to worry about repayment
Cons
  • More personal risk
  • Less power to handle surprise events
  • The growth may be limited to the revenue

Revenue-based funding

Revenue-based funding works great for businesses that can accurately predict their revenue over a certain projected period. Here, a financing company injects capital into your startup in exchange for a percentage of the revenue, with interest.

Pros
  • You retain the equity
  • Flexible payment terms
  • Much faster than VC rounds or bank loans
Cons
  • You need proof of predictable revenue
  • Not economical for long repayment periods
  • The amount of capital is limited to the monthly recurring revenue

Crowdfunding

This is one of the most popular ways to acquire startup capital. On platforms like Indiegogo, Kickstarter, and GoFundMe, you pitch the startup to a massive audience, set a target amount, and let them donate or invest in your idea.

Pros
  • It can serve as a proof of concept
  • You won’t have to give up much equity
  • It’s a great option if you can’t bootstrap the company
Cons
  • The investment may not be huge
  • You need to protect your business idea carefully
  • Some platforms only provide if you hit the funding target

Start-up competitions

The prize money in these competitions may not be as much as VC, but you’ll get free publicity and a chance to pitch your business to a wide range of industry leaders and experts, opening doors for strategic partnerships and bigger investments.

Pros
  • It works great for innovative startups
  • You’ll get free money and free publicity
  • You’ll understand the flaws in your business model
Cons
  • There’s huge competition
  • It may not be the best fit for your startup
  • Preparing for the event takes a lot of time and effort

Grants

Federal, state, and local grants are great sources of funding. Usually, you need to meet a list of criteria set for each program. The process may sometimes be tedious.

Pros
  • There’s no repayment
  • You don’t need to offer collateral or equity
  • There are so many programs open for participation
Cons
  • There’s a lot of competition
  • You may not meet the criteria for some programs
  • The application process is rigorous and time-consuming

Peer-to-peer lending

You can directly get a loan from individual investors, without any bank involved. Here, a peer-to-peer lending platform reviews your application, and if approved, it manages the entire process for you.

Pros
  • You don’t need any collateral
  • You may get additional funds in the future
  • Much easier and faster than a traditional bank
Cons
  • It may be riskier than a bank
  • It is considered illegal in some regions
  • The rates and criteria differ for every platform

Friends & Family

It’s easier to pitch your startup to people who already know and trust you. As an entrepreneur, you may think that this is only an option for rich families. But, keep in mind that you don’t need a lot, just enough to get the startup off the ground.

Pros
  • People invest in you and your abilities
  • They will provide non-financial support as well
  • Often, you don’t have to worry about equity or interest
Cons
  • The amount of funding is still limited
  • It may negatively affect relationships
  • It may introduce pressure

Other funding options outside the banks

  • Invoice factoring and invoice discounting
  • Invoice financing
  • Alternative or private lenders
  • Venture capital
  • Angel investors

Quote for thought

Remember, if a window of opportunity appears, don’t pull down the shade, and “If opportunity doesn’t knock, you can build a door.”(Milton Berle)

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BDC

Rev Capital

Economic Development

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