Unfortunately, money doesn’t grow on trees. If you’ve got an idea for a business, a plan to expand to a new location or develop a new product, or have a huge order or contract to fulfill that requires more operating costs, where can you go for a financial leg-up?

The main way to finance a business is through equity or debt financing—or a combination of both.

What is equity financing? 

Equity financing involves giving up part of your company in return for investment. If you’ve ever watched CBC’s Dragon’s Den, that’s what the show is all about. In return for investment, you would typically provide a share of profits, and you might have to give up some decision-making ability.

You don’t need to go on TV to get equity financing. Angel investors, like the “Dragons,” have money to invest, and are actively looking for opportunities. You can also get financing from venture capitalists. They work for firms that invest other people’s money in businesses. You could also take your business public and offer shares for sale.

While equity investment can provide good repayment terms, the downside is you may have to give up part of your business ownership dream to get it.

What is debt financing?

Debt financing involves borrowing money that you pay back later, with interest. Types of debt financing include credit cards, business loans, a line of credit and an overdraft. These services are offered by Coastal Community and other financial institutions. Business loans are a common form of debt financing. There are three main types: 

• Short-term: Usually for up to one year or less to cover day-to-day costs. 
• Long-term: For larger expenses, such as property, equipment, vehicles, etc. 
• Operating: Help maintain a positive cash flow by covering expenses.

Loans like these are the most common way to finance a business in Canada, especially a small- to medium-sized business. The big benefit is you’re still in complete charge. If, for example, you borrow $50,000 from a credit union or bank, they won’t want any say in how your business is run. Any profits are all yours to invest back into the business.

Other types of financing 

Another type of financing is government grants. However, they’re not available to all businesses or industries, and can be hard to get. This type of financing should be looked on as more of a bonus. The Canada Business website is a great place to start. Crowdfunding is a popular way to fund everything from an innovative new product to a book. Or, as well as investing your own money, you can ask friends and family to help get your business up-and-running or provide some working funds.

How to get a loan

Before reviewing your financing options, consider a few key questions:

• How much do you need and for what purpose?
• What personal funds can you invest?
• What assets do you have as collateral?
• What is your credit rating?
• What debt do you currently have?

Then, ensure your business is as attractive as possible to investors and lenders:

• Provide projections for good cash flow
• Put up assets for collateral
• Demonstrate how you are, or will be, a well-run company
• Maintain a good personal credit rating
• Always make loan repayments on time

Your first step? Talk to your financial institution’s business advisor. They can help you sift through your options to find the best financing and repayment terms.