indicatorStart Up Business

Funding your entrepreneurial dream as a new Canadian

By ATB Financial 1 September 2020 5 min read

New Canadians create businesses at a higher rate than Canadian-born citizens, according to StatsCan. The longer they stay in Canada, the higher their likelihood of starting a business. Yet, for new Canadians, financing their entrepreneurial dream remains one of their biggest barriers to starting a business.

One of the main challenges for new Canadians wanting to start a business is not having an adequate credit history, says Ricardo Flores, Entrepreneurial Strategist at ATB. This means it can be difficult to secure a loan or line of credit for a business.

For new Canadians who know entrepreneurship is their calling, Flores says building credit as soon as possible will be vital. To secure a loan, you typically need about six months of credit history at a minimum. The most common way to build credit is to start with a personal credit card with a small limit.

“This is very important for a new business, because when you’re applying for business credit, it would be mainly based on your personal credit history,” says Flores adding you can build credit faster by using different types of credit vehicles, like a personal credit and a line of credit.

But remember, make your payments on time and avoid driving your credit utilization score too high — basically the amount of debt you have compared to how much credit you have access too — as that may negatively impact your ability to access capital.

 

Business capital is crucial

“There’s a general misunderstanding that you only need funds to cover your start up costs,” says Flores. “I see a lot of times where entrepreneurs don’t have funds to cover operating costs for a few months.”

These costs include covering payroll, utilities and other necessities to ensure your business can run smoothly in all areas of operations. It’s critical to have access to between three and six months of operating costs in case of disruption or unanticipated setbacks.

“A good strategy for any financial goal is to have some savings in place, in case things go sideways. We undervalue the ability to save money through a regular contribution plan. It’s the most effective way to build your savings,” Flores says.


Ways to fund a business for new Canadian entrepreneurs

As you begin your entrepreneurial journey there are multiple avenues for securing funding to make your dream of starting a business become a reality. Here's an overview of the financing sources worth exploring:


“Love” money

This type of funding is money loaned to an entrepreneur by family members, other relatives or friends. It’s also known as patient capital and is typically paid back when the business profits increase.

“These individuals might not ask for any interest, just being paid back the principal amount,” says Flores. One thing to remember is borrowing money from friends and family can put those relationships at risk. “A lot of family problems extend from monetary issues. If you value those relationships too much and don’t want to risk them or put them in jeopardy, maybe consider other options,” he says.

 

Take on a business partner

Entrepreneurs can consider adding a partner or partners as co-owners in exchange for an injection of capital, says Flores. This step should not be taken lightly and be discussed at length with all parties involved. It should also include a written agreement reviewed by a lawyer that outlines roles, decision making, and exit plans to protect everyone involved.

 

Bank loans

This is the most common type of funding for entrepreneurs starting a business. Unlike financing from family, friends or partners, this money will need to be paid back with interest regardless of the success of your business.

Financial institutions will have different options for loans depending on the entrepreneur’s needs. For example, loans for long-term fixed assets will function differently than loans for day-to-day operations. Flores says new Canadian entrepreneurs must ask questions when exploring all types of bank loans.

“It’s better to ask a silly question, than make a silly mistake,” he says. “Ask about all the terms, conditions and fees. You want your financial institution to explain all the real cost of borrowing. Not only interest rate, but maintenance fees and banking fees. Also ask all the “what ifs”, like what happens if something goes wrong and you can’t pay? What wiggle room do you have? What are the consequences?,” he says.

Regardless of your business financing needs, the financial institution will want to see a strong credit history, a viable business and a strong business plan when considering lending to an entrepreneur. Any loan an entrepreneur does take out could be secured by business assets (like accounts receivables, inventory, equipment or real estate) or personal assets (like savings or a home).

 

Crowdfunding

Crowdfunding is a relatively new way to raise small amounts of money contributed by individuals often in exchange for tiers of rewards, like discounts to future products or early access to services. ATB has a crowdfunding platform called ATB Boostr that connects Albertans with local entrepreneurs looking for support.

“Crowdfunding is certainly a good way to launch a product or service. The advantage is that it allows you to get funds to test your product or services and gather intel around your offering,” says Flores. A successful crowdfunding effort must include a solid marketing plan to rally supporters around your idea.

 

Government Funding

There are a number of government funds and agencies who provide financing for new Canadian entrepreneurs, including grants, subsidies, loans and credits, depending on the industry. Any new Canadian entrepreneur should investigate the following funding sources:

  • Small Business Services Canada has a comprehensive list of federal and regional funding sources. Plus, it has an easy to navigate form to help you find the best funding for your business.
  • BDC New Canadian Entrepreneur program is for those who arrived less than five years ago, have permanent resident status, a viable business plan and have been in operation for at least 12 months with revenues.
  • Futurpreneur Newcomer Loan is for entrepreneurs aged 18 to 39 who have been in business for less than 12 months, have little or no credit history and have permanent resident or citizenship status.
  • Canada Startups has a funding database with over 1,500 sources (government grants, government loans, tax breaks as well as from private investors) that is searchable for members. Here’s a step-by-step walkthrough for Albertans of how to search the database.

If you believe you will need access to funds to support for your entrepreneurial goals, the earlier you understand how much you need — and how much you can get — the better informed you will be to build a plan to get there. Whatever path you choose for securing funding for your entrepreneurial goals, knowing the risks of each option will allow you to make the best decision for your new and growing business.

If you are looking for advice on the best approach for funding your entrepreneurial dream as a new Canadian, our ATB Entrepreneur Strategists would be more than happy to connect you with fellow entrepreneurs, industry partners and other helpful resources to help you grow.

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