8 Sources of Business Start Up Money

So you’ve got a killer business idea and want to start a business. How are you going to get the business start up money you need to take your new business from idea to success? This rundown of where to look for the start up money you need and the most popular sources of business start up money will help.

1) Your own pockets.

This may be daunting at first glance, but it’s the most popular source of business start up money. Don’t have a start up money nest egg? Many people get the business start up money they need by mortgaging or remortgaging their homes, or selling property or possessions – even those who do succeed in getting a start up business loan. Lending institutions and investors usually expect the person starting a business to make a personal financial commitment.

2) Family and friends.

The second most popular source of business start up money. Family and friends are often willing to provide a business start up loan or sometimes even an outright gift. After all, they’re likely to be already “pre-sold” on the value of your business idea to some degree, as your family and friends believe in you.

3) A line of credit.

While not recommended as a sole source of business start up money, a line of credit is essential for the start up phase. No matter how careful and detailed you’ve been in preparing your business plan, there are always unexpected expenses and expenses that you’ve underestimated.

Before you start a business, you should already have prepared the way to access this source of business start up money by having established a relationship with your local bank manager and by ensuring that your credit rating is in good shape.

4) A start up business loan from a bank.

I’m using the term “bank” to refer to a business start up loan from a traditional lending institution (such as banks and Credit Unions). It’s actually easier than ever to get a business loan, as more people than ever have been successfully starting small businesses and the big banks have more interest in small businesses than they used to.

That said, you can't just walk in, tell a loans manager how much business start up money you want, and expect to walk out with it. Applying for any business loan is a process that you need to prepare for. See How to Get a Small Business Loan to learn how to make a winning loan presentation and get the business start up money you need.

Don’t overlook the BDC (Business Development Bank of Canada). Supporting business is their business and the BDC has several programs that directly address start up business loans, such as their CoVision program, which provides customized term financing up to $100,000 for new businesses demonstrating long-term viability.

5) A start up business loan from a business-related or government sponsored organization.

There are many organizations whose purpose is to promote economic development or provide assistance to help particular types of people succeed in business. Often (but not always) this assistance includes financial support, such as start up business loans. For instance, one of the ways the Canadian Youth Business Foundation, a non-profit organization, supports young entrepreneurs (aged 18 to 34) is by providing start up business loans of up to $15,000.

Many women’s organizations also provide financial assistance to women in business, including start up business loans. Alberta Women Entrepreneurs (AWE) is one such organization; you’ll find links to women’s organizations throughout Canada in my Women in Business library.

There are economic development organizations in place in every province and territory to provide support and services to entrepreneurs, including financial assistance. For example, in Ontario, Community Futures Development Corporations (CFDCs) operate in selected communities in rural and Northern Ontario, while Community Business Development Corporations (CBDCs) serve rural Atlantic Canada.

And the Canada Small Business Financing Program (CSBF) provides term loans of up to $250,000 to help finance fixed asset needs through business loans made directly by a qualified lender (such as a chartered bank, caisses populaire, or credit union).

You’ll find more examples of organizations that offer business loans, including start up business loans, in the Small Business Loans library.

Continue on to the next page to read about three more potential sources of business start up money.

Here are three more possibilities for accessing business start up money that you should check into if you're starting a business:

6) Participating in a government-sponsored business start up program.

If you qualify, this is the best way to start a business. Programs such as the Self-Employment Program (for unemployed Employment Insurance eligible individuals) and the Seed Capital ConneXion Program for Young Entrepreneurs (for young entrepreneurs in Atlantic Canada) not only provide start up money but invaluable assistance, such as mentoring and help developing your business plan. These are just two such start up programs; there are others.

7) Finding investors.

Angel investors, venture capitalists, or private lenders all may be excellent sources of business start up money for your new business. While it’s certainly more difficult in most cases to attract investors to a start up rather than to an established venture, it’s not impossible if you have the right business idea at the right time backed by an impressive business plan. See Prepare an Investor Ready Business Plan for more on tailoring your business plan to impress potential investors.

Government grant programs.

While this is often touted as a great source of business start up money, it’s not, because most start ups simply don’t qualify as you'll see in The Truth About Small Business Grants in Canada. While there are government grants available, finding one that can provide start up money for your new business will be an enterprise in itself (which is probably why there are so many companies out there providing grant-finding services).

Those planning to start up “the right business” will have a much easier time finding government grant programs that may provide business start up money. For example, generating efficient, renewable energy is a priority of the federal government, so businesses involving Cogeneration (using one fuel to simultaneously produce heat and electricity) or renewable energy technologies will find more government grant opportunities than others. If you're interested in pursuing a grant as business start up money, 5 Tips for Finding Small Business Grants can help narrow your search.

Which of these sources of business start up money is best for you? Probably, like most of the people who have started businesses before you, you’ll need a combination of business start up money sources to get the money you need to develop your business. You may even want to explore all of these. Whatever you do, however, don’t depend on your personal credit cards for the business start up money you need. It’s best to wait to start your business until you have the funds you need in place rather than crippling your new business financially and perhaps ruining your personal credit rating.

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By Susan Ward
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