After spending much time and effort devising a business plan, entrepreneurs often become discouraged when they are faced with the numbers needed to get their company off the ground. To avoid getting overwhelmed, entrepreneurs should be aware of their business financing options.
Traditionally, banks were the first choice as a source of finance, but with the economy performing poorly in recent years, banking institutions have become much stricter and stingier with the amount of money they loan and who they loan it to. Alternative sources, and combinations thereof, are becoming more and more important for businesses to get financed.
Grants are popular with start-up businesses because they often don’t require payback. However, the number of grants offered by the government and private organisations every year is limited in Canada, while the number of people applying for them is only increasing because of the global banking crisis. Furthermore, grant application processes are usually lengthy and complicated. Organisations want entrepreneurs to prove that their plans are serious, detailed and nearly fail-proof, and often times, they expect these small businesses to match their offer.
One financing option that is becoming more available and more popular is angel investments. Angel investors are private investors who provide business capital to start-up companies in return for equity. They usually offer their business expertise and contacts as well as funding and expect a reasonable return within five to ten years. Parties are matched up so that both the investor and the entrepreneur receive optimum benefits from the partnership.