Getting funding for your startup is
all about the right mix of preparation, networking, and pitching. Here's a
breakdown of the typical ways to secure funding :
How can you fund a start-up?
You might choose to seek a bank loan, apply for a grant, join a business
incubator, or even get support from friends and family. These funding methods
can be used together, but each comes with its own set of conditions.
This article explores various
funding sources that can help you launch your business.
1. Personal
investement
When launching a business, the most common
initial funding comes from your own savings. Using personal funds eliminates
the need to borrow money or bring in external investors, which can often be a
lengthy process. It also helps you retain full ownership and enjoy all the
profits generated by your business.
However, if you choose to
apply for a loan to finance your startup, lenders will typically require you to
contribute your own money or offer collateral. This shows that you’re dedicated
to the venture for the long haul.
2. venture
capital
Venture capital
investors—whether individuals or firms—seek out businesses with strong growth
potential, particularly in tech-focused industries like IT, telecommunications,
and biotech.
This form of funding suits
ambitious yet higher-risk ventures. It enables companies to expand rapidly
without relying on internal funds to service debt.
Venture capitalists typically
take an active role in the businesses they support, which means you'll need to
give up a share of ownership. In return, they'll expect a solid return on their
investment.
If you choose this path, aim
to partner with investors who offer valuable industry insight and expertise.
BDC’s venture capital team
backs innovative start-ups that are well-positioned in high-potential markets,
offering strategic support and investment to help them grow.
3. Financial
Angels
Financial angels are typically
affluent individuals or retired executives who choose to invest in small and
medium-sized enterprises (SMEs), especially those in the early growth stages.
Their investments usually range between $25,000 and $100,000.
Often recognized as experts in
their industries, these investors can offer valuable advantages to your
business, including:
- extensive
experience
- a
strong professional network
- technical
expertise
- solid
management skills
To safeguard their
investments, financial angels might ask for certain rights, such as:
- overseeing
company management
- securing a seat on the board of directors
- ensuring
full transparency in operations
Since they usually prefer to
stay under the radar, finding financial angels can be challenging. However, you
can connect with them through dedicated organizations or online searches. Groups
like the National Angel Capital Organization, Canadian International Angel
Investors, and Anges Québec are good places to start.
4. Self
funding
If you have
sufficient personal savings, you might opt to finance your startup on your
own—also known as bootstrapping. This could involve using your own cash or
tapping into retirement funds through options like Rollovers as Business
Start-ups (ROBS). One of the main advantages of self-funding is that it allows
you to maintain complete ownership and decision-making power, unlike relying on
investors, and you also avoid interest payments that come with loans. However,
the risk is that if your business doesn’t succeed, you could lose your personal
savings.
5. Microlenders
Microlenders are typically
private organizations or nonprofit institutions that provide small-scale
loans—often ranging from a few hundred to several thousand dollars—to new or
growing businesses that might not meet the strict requirements of traditional
banks. These lenders often focus on supporting entrepreneurs from underserved
communities, including minorities, women, veterans, or low-income individuals
who face barriers to accessing mainstream financial services.
Microloans are generally
easier to qualify for than standard business loans, and they often come with
more flexible terms, such as lower interest rates, smaller repayment amounts,
or longer repayment periods. While the loan amounts may be modest, they can be
used for a variety of startup needs, such as purchasing equipment, inventory,
or working capital.
6. Small Business Grants: Free
Funding Opportunities for Startups
Securing a startup grant can be challenging due
to intense competition, but the reward is worth the effort—grants provide free
funding for your business. Unlike loans, grants don’t require repayment or
interest, and unlike investors, they typically don’t demand a share of your
company. If you belong to an underrepresented group, consider exploring grants
specifically designed for women, veterans, or minority-owned businesses.
7. Crowdfunding
Crowdfunding is a method of raising funds where
a business seeks small financial contributions from a large number of
individuals.
Typically, the business
provides equity—ownership shares—in return for the funding. However, unlike
investors in public companies, these contributors may find it more difficult to
sell their shares.
Compared to launching an
initial public offering (IPO), businesses using crowdfunding usually have fewer
regulatory requirements to follow.
There are several types of
crowdfunding:
·
Equity Crowdfunding
Investors contribute funds in exchange for ownership in the company or a share
of profits or revenues tied to a specific product.
·
Debt Crowdfunding
This involves investors loaning money to the business, often at higher interest
rates. By distributing their loans across multiple companies, investors can
minimize risk. Meanwhile, the business benefits from receiving a substantial
total investment in smaller parts.
·
Donation or Reward-Based Crowdfunding
The business sets a financial goal and invites supporters to donate. In return,
contributors typically receive a small gift or early access to the future
product or service.
8. Business
credit cards
Using a
credit card to fund your startup can be a viable option if other financing
avenues haven't worked out. When managed wisely, business credit cards can
offer short-term funding for essential purchases and expenses. Cards with a 0%
introductory APR are particularly helpful—provided you have a strategy to pay
off the balance before the promotional period ends and higher interest rates
kick in. Additionally, business credit cards often come with advantages over
personal ones, such as higher credit limits and rewards tailored to business
needs.
9. Business
incubators
Business incubators provide support
to start-ups at various stages of growth, with a primary focus on high-tech
industries. These incubators typically serve companies in advanced fields such
as biotechnology, information technology, multimedia, and industrial
technology. Some incubators, especially those focused on local economic
development, assist a broader range of businesses aimed at creating jobs and
revitalizing regions.
Incubators offer shared office space
along with administrative, logistical, and technical resources. For example,
they may provide laboratory facilities, allowing new businesses to develop and
test their products at a lower cost before moving into full-scale production.
Start-ups typically remain in an
incubator for up to two years. Once their product is ready, they leave the
incubator to independently manage production.
10. Online
lenders
Online lenders are typically non-bank or alternative lenders, making
them a good option if you need quick funding. These loans often have more
lenient requirements, such as lower minimum business history and credit score
thresholds. They also tend to involve less paperwork than conventional loans
and may not require collateral. However, the downside is that they often come
with higher interest rates and additional fees.
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