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FINANCING
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Content
Content ........................................................................................................................ 1 Purpose........................................................................................................................ 1 Introduction .................................................................................................................. 2 1. Personal Financing .................................................................................................... 2 2. Family and Friends..................................................................................................... 2 3. Unsecured Personal/Business Lines of Credit .............................................................. 2 4. Credit Cards .............................................................................................................. 2 5. Crowd Funding Sites and Peer-to-Peer Lending ........................................................... 3 6. Factoring .................................................................................................................. 3 7. Leasing as a Financial Tool ......................................................................................... 4 8. Other financing options .............................................................................................. 4 8.1. Business Development Canada (BDC) ........................................................................................... 4 8.2. Agriculture Financial Services Corporation (AFSC) ....................................................................... 4 8.3. Canadian Youth Business Foundation (CYBF) ............................................................................... 5 8.4. Alberta Women Entrepreneurs (AWE) ............................................................................................ 5 8.5. Community Futures Loans for Rural Alberta Entrepreneurs (CF) ................................................. 6 8.6. Alberta Entrepreneurs with Disabilities Program ............................................................................ 6 8.7. Canada Small Business Financing Program (CSBFP) .................................................................. 6 9. Grants, Subsidies and Rebate Programs ...................................................................... 7 10. Contests and Awards ............................................................................................... 7 11. Angel Investors ........................................................................................................ 8 12. Venture Capitalists ................................................................................................... 8 13. Issuing shares ......................................................................................................... 8 14. Life Insurance Loan .................................................................................................. 9 14.1. Whole Life Insurance Policy ........................................................................................................... 9 14.2. Universal Life Insurance Policy ...................................................................................................... 9 15. Home equity Loan .................................................................................................... 9
ALTERNATIVE FINANCING OPTIONS FOR SMALL BUSINESSES (09/2012)
Purpose
Financing is often one of the most challenging and frequent concerns faced by entrepreneurs and small business owners. Whether you are thinking about starting a business or expanding your existing operations, money will be a key requirement to help you achieve your goals. When most people think of financing, traditional lending sources such as banks are usually what comes to mind. Financial institutions are definitely a viable option for many business owners, but in some circumstances, conventional lending may not be possible. Getting a loan from the bank requires many factors including a good credit rating, collateral, a personal guarantee, and a comprehensive business plan. New businesses without a sales history and those operating in higher risk areas will especially be more challenged to access a loan through a traditional lending system. Alternative options to raise capital and expand operations do exist. This guide will explore what you can do in case your business doesnt qualify for a traditional business loan from a bank or financial institution.
Introduction
The following alternative financing options are meant to give you some ideas as to the non-traditional and creative ways that you can finance or bootstrap your business.
1. Personal Financing
Financing your business with personal savings will strengthen your ownership in the business and give you more incentive to make your business work. As well, it will provide you with the freedom and flexibility to operate your business as you choose too, and makes your business more appealing to potential investors. Consider the following ways you can raise capital to start a business: Use your personal savings Increase your income For instance you can get a part-time job, ask for more hours at work or ask for a raise, or rent out a room in your house Sell non-essential personal assets Think high value assets such as your second vehicle, property, recreation equipment, furniture and artwork/collectibles Cut expenses or save money Budget accordingly and reduce expenses/debt by sacrificing premium products for budget products or lessen the frequency of luxury or incidental purchases. Daily changes can make a big difference in the long run. You can also ask for lower interest rates with your credit cards.
4. Credit Cards
Credit cards can help your business financially in two ways: by providing access to cash when needed; and in building credit history. Credit card providers also offer loyalty programs that can benefit your business such reward programs, 0% or low introductory interest rates, balance transfer options, travel rewards, among many others. Use credit cards with caution as they can have very high interest rates and using them for longer-term funding can cost you significant money in the end.
ALTERNATIVE FINANCING OPTIONS FOR SMALL BUSINESSES (09/2012)
6. Factoring
Factoring is an option which applies mostly to established businesses that already have a sales history. It refers to the selling of accounts receivables to lenders (also known as factors) who purchase outstanding invoices as collateral for funding. Borrowers have two options: To sell the outstanding invoices to lenders (factors) against a short-term loan at a rate normally ranging from 65% and 85% of the invoice amount. With this option, the borrowers are still responsible for receivable collection. To sell the outstanding invoices to lenders (factors) against a short term loan generally ranging between 70% and 90% of the invoice total value. In this option, the lenders (factors) are responsible for debts collection.
For more information on Business Development Bank of Canada and their financial services, visit www.bdc.ca
Specific Loan Guarantee Program which allows AFSCs clients to access business loans from other lenders via a guarantee from AFSC. For more information on AFSC and their financial products and services, visit www.afsc.ca
Your business has the potential to assist with the economic growth and diversification of the community. The Community Futures business loan can be used to start or expand a business, to apply new technology, to upgrade businesss facilities and/or equipment, to cover costs related to the development of new products and markets for the business, to commercialize a product or service; and to access working or patient capital necessary to fund business growth. For more information, visit http://www.cfna.ca/entrepreneurship.php
Personal guarantees are required but are limited to a maximum of 25% of the loan. A one time up front government registration fee of 2% of the loan amount is payable to the government and can be added to the loan principal. For more information on CSBFP, contact your local bank or financial institution or visit http://www.ic.gc.ca/eic/site/csbfp-pfpec.nsf/eng/h_la02855.html
Venture capitalists usually invest other peoples money and are professional investors . For more information on venture capitalists, visit the websites of the Canadian Venture Capital & Private Equity Association at www.cvca.ca and the National Angel Capital Organization at www.angelinvestor.ca