You’ve started your enterprise and you’re short of funds a long time before you thought you might need money. What do you do?

Let’s check out your Equifax and Beacon (aka FICO) score. If your credit check works out to acceptability according to the bank’s standards; congratulations, you can get a personal loan.

Try telling them the loan is for your new business venture. The very first thing they will ask you for is a personal guarantee and financials for the last 3 years, but wait aren’t you a startup? How can you show money you haven’t made yet. I guess loans are only for businesses which have been running for 5 years. But don’t worry they will give you the loan all you need is to give them collateral like your apartment or your house as a guarantee that the loan will be repaid if you default.

There are several methods of financing a new venture in Canada (it’s pretty similar in the US and you also have the  Small Business Administration.

  • Friends and family is the first bastion of investment in your business. A general rule in business financing is to go to those closest to you because if they don’t believe in you why should the banks. Many large companies have begun this way.
  • A Co-Signer for a loan, ask your family. Sure you are putting someone else on the hook for you but if you believe in your business and have good advisors why not ask a friend or family for help?
  • A partner. Ouch is that a good idea? Perhaps if you have skill to open a business and your investor/partner has the money to allow you to be successful it might be a good collaboration. Check with a lawyer to find out whether you need a partner or an investor . They are not the same.
  • Personal loan through your personal bank. It gets a little complicated if you borrow personally especially if you are incorporated. Check your tax implications with your accountant. (you do have one right?)
  • Commercial loan through your personal bank. As above you need to prove sales and past business. This is not for start-ups
  • A Peer Loan through Vancity Credit Union. This is a special loan program initiated by one of the local Credit Unions (400,000 members). You gather 3 of your friends and form a peer group of like-minded individuals who can use a small loan to finance a specific project or maybe correct a mediocre credit rating by paying this loan back quickly. Each member of this ad hoc group show each other their credit report, agree to support each other in helping each member makes their loan payment and meet once a month to support each other. If all members pay back the loans successfully the group can apply for a larger loan in step 2
  • A Be My Own Boss Loan through Vancity. This is a government guaranteed ‘character based’ loan. You don’t need to show past sales or put up collateral. Since the government guarantees the loan the credit union have you do proforma financial statements meaning its 2 years of future not past earnings.
  • Canadian Youth Business Foundation loan. This is a loan for entrepreneurs under 35 who have good credit histories but are in the start-up phase of their business. Community Partners (I am a Coordinator) administers the loan application process and provide exceptional low interest loans with mentorship. A client is also assigned a mentor during the length of the loan and is able to have a matching loan from the Business Development Bank for an equal amount.
  • Grants? That must be an urban myth because I think they went out with the hula hoop!

Need more information or some help drop me a note.

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  2. · It drives me MAD when I go to a blog and there is that ‘comments closed’ wording at the end.. .don’t know why but I feel as if, no matter HOW old the article is, the owner of the content is saying “all that could possibly be said was said, so whatever you have to add just isn’t important enough to matter”. It takes NO skin off people’s noses to keep comments open, maybe once in a blue moon go back through from post 1-50 and reply… but if you don’t then just don’t… but I think regardless you should leave comments open, because isn’t the whole point to encourage interaction?

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