F-Shizzle’s getting real: where to go when you need MONEY to grow your business
I’ve been a bootstrapper all my entrepreneurial career. What does that mean? Well, it means that I’ve only used my own money (and my profits) to start and grow my business. For some reason, when I call myself a “bootstrapper” I think it sounds like I’m a Pirate? That’s probably ingrained in my brain from the OG Pirates of the Caribbean movie, but who knows what goes on in this head of mine.
But I digress…many of us entrepreneurs go the bootstrap route, doing what we can, with what we have. Sometimes, though, we need a bit more of a cash surge than our bank accounts can handle. Maybe it's for a huge inventory order, a website (re)build, marketing blitz, or a new studio space.
Whatever the reason, at some point in the growth of our businesses we may need a boost. Let’s go through some options for where to find the cash.
BANKS
The most common way to get a cash influx for your business is through a bank loan or line of credit. Loans are where you get a lump sum of money and have to repay that amount, plus interest, over a certain period of time. Lines of credit are where you get access to a set amount of money and can use it whenever you need. You pay interest on money that you borrow, and when you pay back what you use, you can borrow more. It's like a money bucket that never goes away.
With your bank, you will likely need a business or project plan that will show how the loan will help you reach your business and profit goals. This will describe your business and provide a financial forecast for how you’ll use their money.
GRANTS & GOVERNMENT SUBSIDIES
This is often an untapped resource for cash for your business. Governments - both federal and provincial - have a wide range of programs that are designed to support small businesses. Often these funds are not repayable, or in some cases, can be low interest loans. One thing to note is that the applications and proposals will take you some time to prepare, and you have to adhere to the program deadlines. I’ve also found that it can sometimes take 6-8 months before you actually hear back to see if you were approved or not, so planning ahead is critical.
You’ll need to do a bit of research to figure out what grants fit with your business, goals, and such. Start on this website (https://www.canada.ca/en/services/business/grants.html ), narrow your options down, and then dive into the fine print of requirements.
INVESTORS
Generally speaking, you need to be incorporated in order to use this “cash-raising” method. This is because when you take on investors, you’re selling a part of your company to them. You can decide how much ownership you want to give up and what rights and privileges you’ll give them, but ultimately you’re going to sell someone a SHARE in the rights and responsibilities of your business. They give you cash, they get a cut of the action.
Investors do this for one of two reasons. One - they just want to help you succeed and aren’t really looking for a payout on their investment. Or two - they’re looking for a payday. They’re banking on your success and expect that one day you will either issue them regular dividends, or if you sell, they’ll get their money back and then some.
Some may think they should be ACTIVE in managing and directing your business; others are happy to hear from you once a year. It's important to understand the expectations and motivations of your investors so you can manage that accordingly.
CROWDFUNDING
Crowdfunding is a relatively new way for businesses to raise cash. In clients I’ve worked with, they’ve used crowdfunding as a way to “pre-sell” a product YEARS before its ready, and raise the funds needed to pay for the production and manufacturing of the product. When it's finally released, all your crowdfunders get their items, and you’ve managed to pay for everything before it even hits the store shelves.
There are several platforms out there that help connect you with the masses, but it definitely takes a lot of work to succeed at this type of micro-investor strategy.
FRIENDS & FAMILY
Yeah this isn’t always the most desirable funding source, but often its the quickest and easiest way to get a cash boost if time is of the essence. I always suggest making these family loans as formal as you can, so that there are clear expectations on both sides about what’s happening. A breezy “sure, no problem” can quickly turn into a sticky family feud if you’re not crystal clear.
Prepare a quick loan statement that shows who is borrowing what from who, the date the loan was given, any interest being charged, the date loan payments will start, how much the loan payments will be, and when it will be paid back. I know this sounds a little over the top, but I promise you, that it will save you some headache in the future.
There’s five options for you! Which one you choose will depend on you, your business, and what you’re trying to achieve. Each has its own pros and cons so do some soul searching and decide what fits best for you.