How To Fund Your Growing Business In 2022
As a Canadian business owner, you've grown accustomed to fighting for your future. From generating new business to managing costs, much of your time is spent ensuring that enough capital remains available to successfully tackle ongoing operations. Oftentimes, this will be a successful endeavor. When it isn't, though, how should you approach the funding critical to your survival? In addition to that, how can you ensure that both the type and amount are right for your business?
Over the next few paragraphs, we'll be discussing the first of those questions, exploring the funding decision, and breaking down the options available to your growing business.
When Does A Business Need Funding
When is the right time for a business to start funding its operations? This is a question with no simple answer, unfortunately, as it depends on a variety of company-specific factors. That said, there is a general rule of thumb that can help business owners guide their decision.
Generally speaking, most businesses should start thinking about funding when they reach a stage where more money is needed than they can generate internally. This might be when sales are increasing and the company needs to invest in new equipment or hire more employees, or when the business is facing difficult times and needs extra cash flow to stay afloat. Although the "oh no we don't have enough money" problem can present itself at any moment, it's a rock-solid indication that funding should be on your radar.
With that understood, where should you source your funding from?
Business Funding Alternatives
It's important to remember that not all business funding options are created equal – some are more expensive and risky than others, and each has an intended use case and timeframe. Below are a few of the most common, easily-accessible funding options for Canadian businesses:
Grants are a type of funding – often offered by the government – that businesses can apply for. The funds can be used for a variety of purposes, such as research and development, expanding operations, or marketing and growth initiatives. Most grants will outline their rules and regulations, making assessment and applicant preparation easy.
The grant application process is typically lengthy, with rigorous reviews by teams of experts now the norm. That said, the benefits can be immensely impactful, with businesses that are accepted for grants often receiving significant sums of money with very few strings attached. The most important element of grants is that the money is often obligation-free, meaning that repayment won't be required following usage.
Loans are the most common type of business funding and come in a variety of forms. The most common is a bank loan, where businesses borrow money from a financial institution at an agreed-upon interest rate over a set term.
Businesses should carefully consider any loans they take on, as the interest rates can be high and repayment terms can be rigid. However, loans can be a great way to get large sums of money quickly, and they often come with more relaxed repayment terms than equity-based alternatives.
Equity financing is often seen as the most exciting of funding options, as it allows businesses to raise money from investors in exchange for a piece of the company. This type of financing is often used when a business is looking to grow rapidly or needs extra funds for a specific project.
The main downside of equity financing is that it can be expensive, as investors often expect a high rate of return on their investment due to the increased risk and lack of regular interest payments. Additionally, businesses can lose control of their company if they give away too much equity as a byproduct of raising capital.
Crowdfunding is a relatively new form of financing that has gained popularity in recent years. Crowdfunding is the act of raising money from a large number of people (the "crowd") through online platforms. Crowdfunding can be used for a variety of purposes, such as launching a new product or service, expanding operations, or even starting up a new business.
The main benefit of crowdfunding is that it's relatively easy to get started - businesses simply need to create a campaign on one of the many crowdfunding platforms and start raising money. Additionally, businesses can often retain control of their company even if they raise a significant amount of money through crowdfunding, with their only obligation being to offer early access to services or products.
Business Funding Support
Deciding whether or not your business needs funding – and then selecting the funding type best fit for your situation and growth trajectory – is no easy task. The team at ParallelCFO has spent years helping companies access the capital needed for sustainable growth, working across various industries, growth stages, and business environments. Contact us today to discuss business funding in Canada, we're excited to help you get the capital needed to level up your operations.