Too high-risk for the bank? Try these alternative fundraising options

April 9, 2015 Entrepreneurs, Start-ups, Small Businesses, Equity Crowdfunding, Alternative Funding, Fundraising, Investing, Trading, Innovation and Resources, Marketplace Lending/P2P, Online Lending, BNPL No comments

Financial Post | Jeffrey Tannenbaum, Special to Financial Post | Apr 9, 2015

As entrepreneurial businesses grow and develop, the sources of financing they rely on can change and pose a threat to their survival. Access to funding remains the biggest hurdle for entrepreneurial businesses, EY’s latest report, Megatrends 2015, suggests. However, those who research their options and think outside the realm of traditional lending can position themselves well for success.

Here are some practical alternatives for raising capital:

Government grants and loans The federal and provincial governments have many programs designed to assist entrepreneurs in the growth-stage of their private businesses. New businesses should consider entrepreneurial-friendly lending options such as Business Development Bank of Canada and Canadian Small Business Financing Program. Depending on the industry in which you operate, refundable Scientific Research & Experimental Development tax credits or digital media tax credits could also assist with cash flow.

If you’re seeking up-front cash for growth-stage financing, the federal and provincial governments have grant and funding programs such as the Industrial Research Assistance Program (IRAP) or the Ontario Centres of Excellence. It’s beneficial to research the incentive programs your business may qualify for and be sure to consider key dates and timelines that may be associated with the specific program applications.

Crowdfunding Alternative funding platforms, such as crowdfunding, are gaining traction for many early stage companies. Crowdfunding allows people (or investment companies) to provide financial support to the business idea or product online. It’s a relatively new means of raising capital in Canada, but many privately held companies have been able to launch successful businesses with the funds raised through crowdfunding portals.

Equity crowdfunding primarily has been used by startup businesses; however, real estate firms, restaurants, manufacturers and other businesses have achieved success in utilizing crowdfunding portals to raise capital. For businesses in industries that pose a significant risk to traditional sources of capital, crowdfunding has become a key way to demonstrate to lenders the demand for their product or service, and validate their financial projections and business model.

Angel investors Angel investors can be another source of capital for your growth-stage business venture. In addition to securing funding, you also gain a mentor and industry expert who can help guide you along your entrepreneurial journey. Angel investors have a genuine interest and often experience in the businesses in which they invest. Like many other growth-stage investors, they will often take an equity position or convertible debt in exchange for their investment.

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