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Financing for Starting a Business Info-Guide
Last Verified:
2006-10-10
The following document was prepared by the Canada-Ontario Business Service Centre (COBSC), a single point of access to information on federal and provincial government programs, services and regulations.
This Info-Guide is designed to help you navigate through the federal and provincial government programs available to individuals starting a business in Ontario. It is also important for you to consider financing from commercial financial institutions, such as banks, trust companies and credit unions.
Need more information?
Click: Canada-Ontario Business Service Centre
Call: 1-800-567-2345
Visit: The
Regional Access Program Location Index for a listing of offices in Ontario.
TABLE OF CONTENTS
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- Web Sites and Publications of Interest
1. General Information
The success of your business depends on you having enough capital to purchase the equipment needed, buy the inventory you will have to carry, pay overhead costs such as rents and salaries, and have a large enough amount set aside for additional working capital and to enable you to take advantage of opportunities or survive temporary setbacks. It is essential to assess the costs of start-up and doing business, and determine the capital required before you begin. This is an integral part of the initial business planning process. Your financial requirements will generally fall into two main categories:
1. Initial costs: land, building, fixtures, equipment, supplies, vehicles, pre-opening expenses and opening inventory;
2. Daily operating costs: rising inventories, payroll, rents, taxes, advertising, accounts receivable, etc.
For further information:
see the document
Dealing With Your Banker & Other Lenders
visit the Web site:
Key Small Business Financing Statistics
http://sme-fdi.gc.ca/epic/internet/insme_fdi-prf_pme.nsf/en/h_01250e.html
2. Overview of Business Financing
In the early stages, the most important financial sources will probably be yourself, friends, relatives and financial institutions. When you are looking into applying for a loan for your business, it is important to study different avenues of financing. We have included here a few brief definitions of various sources of financing.
Banks and Other Financial Institutions
The most common source of financing for small businesses is the chartered bank. Banks can provide a number of financing options, such as short-term loans, long-term mortgage loans and, in some cases, loans against inventory or accounts receivable. Other important sources of financing in this category include trust companies and credit unions.
Credit Cards and Personal Lines of Credit
For very small firms and home-based businesses, credit cards and lines of credit often provide a ready means of obtaining small scale debt capital. While convenient, they bear relatively high rates of interest and limit the amount of capital available.
Partners and Business Angels
Angels are simply wealthy individuals who invest directly in small firms owned by others. Angels tend to finance the early stages of the business. Attracting partners who make an investment in the business is also an option.
Venture Capitalists
Institutional venture capitalists are among the more important sources of risk capital. Venture capitalists are usually private or publicly-sponsored pools of capital that acquire a level of participation in the firm applying for financing. Venture capital can be an effective means of enabling the growth potential of the firm.
3. Business Planning
A business plan is often a key component of your application for financing. The plan describes who you are, what you plan to achieve, where your business will be located, when you expect to get under way, how you will overcome the risks involved and how you will generate your profits. The COBSC has a number of resources that can help you develop your business plan:
Interactive Business Planner - IBP : an Internet tool that guides you through each section of your plan and links you to Internet-based sources of information that may help you complete each section.
For further information:
visit the Web site:
Interactive Business Planner
4. Financing Programs for Starting a Business
Canada Small Business Financing (CSBF) Program
The CSBF Program, under the Canada Small Business Financing Act, can help businesses obtain term loans of up to $250,000 to help finance fixed assets , necessary for the operation of the business including:
- the purchase or improvement of real property or immovables
- the purchase of leasehold improvements or improvements to leased property; and
- the purchase or improvement of new or used equipment necessary for the operation of the business.
The loans are made directly by approved lenders to businesses (excluding farming) operating for profit. CSBF loans proceeds cannot be used to:
- improve a family dwelling for non-commercial purposes;
- purchase shares;
- finance working capital (finance inventory, accounts receivable, etc.);
- permits and licenses used in the operation of eligible assets;
- franchise fees;
- feasibility studies;
- professional fees (e.g. legal, accounting and appraisal);
- survey costs;
- building permits;
- vehicle for personal use;
- intangibles (i.e research and development costs, prepaid expenses, good will, etc,); or purchase real estate for resale.
For further information:
visit the Web site: Canadian Small Business Financing Program
see the document
Canada Small Business Financing (CSBF) Program
Innovation Financing Solution
A new product designed to fund projects to develop e-business, explore new export markets, and to cover the costs of R & D associated with the introduction of new products and services.
For further information:
see the document
Innovation Financing Solution
Business Development Bank of Canada (BDC)
The BDC is Canada's bank for small and medium-sized enterprises (SMEs), delivering financial and management services, with a particular focus on the emerging and exporting sectors of the economy. The BDC has a number of financing programs for a variety of business needs.
For further information:
please call 1-877-232-2269
visit these Web sites:
BDC Web site
BDC:Financing
http://www.bdc.ca/en/business_solutions/financial_services/default.htm
Co-Vision: Start-up financing program
Customized term financing up to $100,000 for new businesses that demonstrate a long term viability.
Note: Co-Vision cannot be used for starting a retail business.
For further information:
visit the Web site:
Financing for Starting a Business
http://www.bdc.ca/en/my_project/Projects/financing/fs_start_business_general.htm?context=%7BF1E6CD9B%2DFEEE%2D42B0%2D80DE%2DF88F65FF15CE%7D&cookie%5Ftest=2
see the document:
Co-Vision - Start-up Financing Solution
Ontario Community Futures Development Corporations (CFDCs)
Through federal support, CFDCs administer local investment funds to help finance new or existing small businesses for start-up, expansion or stabilization plans that help maintain or create jobs. Repayable financing of up to $150,000 on commercial terms through loans, loan guarantees or equity investments is available when financing from other sources is insufficient. All CFDC financing decisions are made at the community level by the local boards of directors.
The CFDCs provide important services to businesses that include:
- business advice, counselling, information and referrals;
- help with business plans;
- export support;
- entrepreneurial training; and
- information on relevant federal and provincial programs and services.
For further information:
please call 1-800-567-2345 or (416) 775-3456
visit the Web site:
CFDC in Ontario
Micro-credit Lenders
"Micro-credit" can be defined as small loans made to individuals to undertake self-employment or to start very small businesses. This type of financing may be provided through a number of different sources: independent non-profit organizations, community economic development programs, commercial financial institutions, etc. Usually, a micro-credit lender serves a particular geographic area or community, or a particular group. The loans are typically under $5,000 and for entrepreneurs who have not been able to secure financing through traditional lenders. Many micro-credit lenders offer some form of technical assistance such as business training, mentoring, peer exchanges and/or networking opportunities in conjunction with their loans.
For further information:
please call 1-800-567-2345 or (416) 775-3456
visit the Web site:
Sources of Financing: Micro-Credit
see the document
Sources of Micro-credit Financing
5. Financing Programs for Youth Starting a Business
Summer Company
The Summer Company program provides hands-on business coaching and mentoring, and awards of up to $3,000, to help enterprising young people start up and run their own summer businesses. In order to be eligible you must be:
- between 15-29 years of age;
- a student returning to school full-time in the fall;
- a resident of Ontario;
- a Canadian citizen or a Landed Immigrant;
- not operating an existing business or employed elsewhere full-time during the term of the operation of the Summer Company program; and
- prepared to commit a minimum of 8-12 consecutive weeks full-time to the experience.
For further information:
please call 1-800-567-2345 or (416) 775-3456
visit the Web site:
Summer Company
http://www.sbe.gov.on.ca/ontcan/sbe/en/youth_summerco_en.jsp
see the document
Summer Company
Canadian Youth Business Foundation (CYBF) Loan Program
The Canadian Youth Business Foundation provides loans of up to $15,000 to aspiring young entrepreneurs who are between 18 and 34 and are most likely to succeed in creating a business and for whom financial assistance is critical. It is expected that the business will provide full-time employment for yourself and others. To ease the early stages of business growth, loan repayments of three or five years are available so that you can stay focused on getting established.
For further information:
please call (416) 408-2923
visit the Web site:
Canadian Youth Business Foundation
6. Financial Assistance for Individuals who are Unemployed to Start a Business
Self Employment Assistance
The Self-employment benefit provides unemployed employment insurance eligible individuals with financial support, planning assistance and mentoring while they get their businesses up and running. Eligible participants are those who, pursuant to the Employment Insurance Act , are unemployed individuals:
- for whom an unemployment benefit period has been established or has ended within the 36 months prior to the date of requesting assistance; or
- for whom a benefit period that included a maternity or parental claim has been established within the 60 months prior to the date of requesting assistance, after which the individual remained out of the labour market in order to care for a newborn or newly adopted child and is now seeking to re-enter the labour force.
Other criteria may apply.
The maximum duration of support is 52 weeks, or 78 weeks for clients with a disability that will affect their ability to make the business sustainable in one year.
For further information:
visit the Web sites:
Self-Employment: Program description
http://www.hrsdc.gc.ca/en/epb/sid/cia/grants/self-emp/desc_self-emp.shtml
Our Offices
http://www.hrsdc.gc.ca/en/gateways/nav/top_nav/our_offices.shtml
see the document
Self-employment Program - SE
7. Sources of Financing
Sources of Financing, is an Internet resource for locating traditional and alternative sources of small business financing. This site provides interactive access to objective information on appropriate forms of public and private sector sources of debt and equity financing, including the following:
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angel investors
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banks, factoring
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leasing
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venture capital.
For further information:
visit the Web site:
Sources of Financing
see the document
Sources of Financing
8. Web Sites and Publications of Interest
Related Reading
DISCLAIMER
Information contained in this document is of a general nature only and is not intended to constitute advice for any specific fact situation. Users concerned about the reliability of the information should consult directly with the source, or seek legal counsel.
Links Policy
Some of the hypertext links lead to non-federal government sites which are not subject to the Official Languages Act and the material is available in one language only.
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