Business Financing

How to find financing for small business

A common issue among small businesses is locating capital for expansion or operating funds.

A major tool that can help business is strong cash flow management. Knowing cash demands, cash income flow, and reserve funding is critical. Understanding funding needs sets up the strategy to be used for financing needs whether short term or long.

Options for capital sourcing include:

-        Commercial banks. The local branch for the business can be a real ally. Treat the bank as a partner not an adversary. If the bank manager has a good understanding of the business he/she will be more supportive in times of need. As long as the business has a history of profitability, banks may be more likely to be supportive of expansion of lines of credit. If business treats the bank as an adversary, it is likely to tighten credit in difficult times and increase cost of borrowing until security is improved.

-        Government funding. These programs can offer opportunities to access low interest or even forgivable loans business can use to expand. This is particularly popular if expansion programs improve the environment, or create employment. Federal programs often focus on the environment, export expansion, tourism and other national interests. Provincial interest largely focuses on job creation and in encouraging foreign investment in local communities that will expand growth.

Review opportunities for the best fit.

-        Business Development Bank. This organization can be a source of funding for a variety of needs including expansion of operating funds, inventory expansion, financing of acquisitions including equipment, or buildings, or even acquisition of new businesses. Cost of borrowing may be a little higher than commercial banks but BDC may be more supportive of needs.

-        Private capital. This can be a source in some instances as individuals or some groups seek to invest in opportunities that could generate higher rates of return. Typically these investors will demand much higher rates of return, depending on the risk level and they often expect a multiple return on their investment. Care needs to be taken if private funding is a last resort to ensure the owner does not lose control of the business.

Choose financing options with great care but pay special attention to day to day management of the business in order to minimize the need for outside financing.