Where Can You Get the Money?

Arranging Financing How will you finance your business? Personal savings Credit from suppliers Loans and mortgages from banks, credit unions and others Government assistance programs Love money Equity capital from private sources Leasing Friends and neighbours Local professionals and angel investors Prepare loan or grant request package Employees Venture capitalists

Major Sources of Funds Personal Funds “Love Money” Banks Operating Loans Term Loans Federal Government Canada Small Business Financing Industrial Research Assistance Program (IRAP) Program for Export Market Development (PEMD) Community Futures Program Business Development Bank of Canada (BDC) Continued

Provincial Government Programs Venture Capital Other Sources of Financing –Personal Credit Cards –Suppliers’ Inventory Buying Plans –Leasing vs. Buying –Negotiated Leasehold Improvements –Advance Payment from Customers Major Sources of Funds (Continued)

Sources of Seed Capital for the Inc. 500 Personal Savings78 Chartered Banks15 Family members13 Employees/partners12 Friends 9 Venture Capital Company 6 Mortgaged property 4 Government guaranteed loan 1 Other sources 3

Debt Vs. Equity Equity When you or others invest money in a business and expect a share of ownership in return Owners are the principal source of equity Debt When you or others lend money to a business Banks are the principal source of debt

Debt Vs. Equity Advantages of Debt Useful for meeting a short term deficit in cash flow You do not have to give up or share control of the company The term of the debt (loan) is generally limited Debt may be acquired from a variety of lenders The information needed to obtain a loan is generally straight-forward and normally incorporated into a business plan

Debt Vs. Equity Disadvantages of Debt Can become problematic when the project is risky and the project is uncertain Taking on more debt than the business needs can be a burden Improper use of the funds can make it difficult for the business to repay its loans If a “demand” loan, it can be called by the lender at any time

Debt Vs. Equity Advantages of Equity An appropriate investor can contribute expertise, contacts and new business as well as money May be the only way to fund high-risk ventures where the cost of debt could be prohibitive Can be used to fund larger projects with longer time frames

Debt Vs. Equity Disadvantages of Equity Have to give up some control of the business Always the danger of incompatibility and disagreement among the investors Much more difficult to terminate the relationship if disagreements occur

Principal Types of Debt Financing Shareholder loans Interest payments are deducible by the business Easier to withdraw your money Investment could be safer in the event of failure

Principal Types of Debt Financing Operating Loan (Line of Credit) These loans help finance inventory and accounts receivable Generally the largest part of a business’ debt obligations Usually secured by the inventory and accounts receivable as well as a personal guarantee

Principal Types of Debt Financing Term Loans The major source of medium term (two to five years) and long-term (over five years) financing Used to finance the purchase of fixed assets such as equipment, vehicles or furniture. Secured by the asset being purchased plus a guarantee backed by personal assets

Protect Your Investment 1.General Liability Insurance 2.Business Premises Insurance 3.Business Use Vehicle Insurance 4.Business Interruption or Loss-of-Income Insurance 5.Disability or Accident and Sickness Insurance 6.Key Person Insurance 7.Credit Insurance 8.Partnership Insurance 9.Workers’ Compensation