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Financing Basics for New Entrepreneurs

By Stanley J. Kershman |

The Myths and Realities of Financing a Business in Canada

If you've decided to take the plunge that some 2.4 million other self-employed Canadians have, and open your own business, you may be wondering where the money will come from. Few entrepreneurs are lucky enough to have bottomless budgets at their disposal, and while certain businesses require more start-up or operating capital than others, all have ongoing cash flow needs.

So, what are your options for borrowing money to finance your business — particularly for sums under $100,000? Let's sort out a few monetary myths from fiscal realities.

Myth: Financial institutions such as banks and credit unions aren't friendly to small businesses.

Reality: They're much friendlier than they used to be.

Most Canadian financial institutions, no matter how large or small, have some kind of small business development centre. Their services and products will vary: some offer a large, centralized office, while others might have one staff person dedicated to handling small business advice. Wherever you currently bank, find out what the small business centre can offer you. Also check out the resources at Industry Canada ( — they can link you with independent small business development centres near you.

Myth: Financial institutions will lend you money at any time.

Reality: Financial institutions will be happy to lend you money when you DON'T need it.

If you have a great, steady job and a squeaky clean credit record, financial institutions would love to lend you money. If you're in the first few months of a start-up business, and you're falling behind on your credit payments, they'll be much less enthusiastic. That's why planning is so important: if you're launching a business in the next year to three years, and you currently have a good job, now's the right time to apply for a line of credit, or to set up some kind of credit facility, while your standing at the financial institution is good.

This is why many business owners find that “bridging” their business start-up with full-time work can be so helpful: as they build up their own business, they can scale down their full-time work while using their paycheques to help pay the bills and maintain their credit rating.

Myth: I've never had any problem qualifying for credit before, so I don't expect any problems now.

Reality: If you haven't checked your credit records lately, you don't know if there are problems waiting for you.

Financial experts recommend that you check your credit records at least annually, to ensure that all the information contained in them is accurate. In Canada, apply to both TransUnion Canada ( and Equifax ( with a written request (it's free, but you can't just phone and ask for it, because of privacy and identification concerns). If there are any mistakes on your record, take the necessary steps to correct them; if there are credit red flags (such as late payments on a credit card debt), do your best to repair them, or be prepared to explain the situation to your financial institution.

Myth: If I can't find financing, I'll never get my business off the ground.

Reality: Non-traditional sources of financing might be all around you.

Think about options beyond traditional financing sources. Perhaps you can add a second mortgage on a home, or use a recreational property or stocks or bonds as collateral. Perhaps you have a guarantor who's willing to co-sign a loan for you. You might even have assets that you're willing to give up: a boat, perhaps, or some expensive heirlooms — I've seen people use a painting worth $25,000 to get themselves started in business.

Myth: I have a great idea for a lucrative business; that's all I need.

Reality: You need a whole lot more if you're going to run a business — you won't find financing without a solid business plan.

Your business plan should be prepared in cooperation with your accountant, to ensure that it contains all of the financial and other information to show what the product or service is; how it will be produced; who will buy it; and how you plan to follow through to make it a success.

To help you develop your plan, consider taking courses in the following areas:

  • Finance, including taxes, accounting or bookkeeping
  • Promotion / marketing
  • Business writing
  • Personnel management, leadership, interpersonal relations, etc.

Remember: good planning and good luck are one and the same!

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