Financing business growth

Making the best choices for your business expansion plans means understanding what financing options are available.

Making the best choices for your business expansion plans means understanding what financing options are available.

As an established business with a solid track record of success, you’ll have a number of available choices. Your task is to identify the ones that fit best with your expansion plans.

It’s important to learn as much as you can about each option, making sure you understand the relevant advantages and disadvantages.

Meet with your financial advisors to obtain their input before you decide. Your accountant, for example, can help you run the numbers to assess the impact a particular financing choice may have on your business.

To help you start the process to design your financing strategy, here are five popular options to explore:

Term loans

Large amounts of well-placed capital can support your growth plans and help your business to remain competitive. For example, if you are planning to purchase fixed assets to boost your operating capacity (such as machinery for your factory or new computers for your design firm) then consider a term loan. Speak to a Scotiabank Small Business Advisor about term loans appropriate to your business plan.

Operating capital

Your growth plans may require ready access to cash, which is best supplied through an operating line of credit.

These banking products are usually a good, flexible option for businesses seeking short-term funding while they collect accounts receivable or move inventory. A line of credit can also act as a cushion to help you manage cash shortfalls or seize opportunities.

Speak to your banker about setting up an operating line of credit. You may be able to borrow up to $250,000 or more. Your banker will help to explore suitable solutions for your business.

Angel investors

With a deal size ranging from a few thousand dollars to a hundred thousand dollars or more, an angel investor is a successful business owner who likes your business model and sees potential for a decent return on their involvement.

Look for an angel investor who can do more than inject money into your business – their connections, business experience and current business activities could be valuable to your growth plans.

Ask your accountant and business colleagues for referrals to known angel investors. You can also find investors by searching online for angel investor networks in Canada.

Venture capital

If you’ve reached the stage in your business when you are looking for this type of outside financing, your first step is to determine what will interest investors:

  • Scalable business process.
  • Strong management team.
  • Disruptive technology or product.
  • Owner’s passion.

Finding investors

Meeting angel investors or venture capitalists comes down to networking. There are many investing groups across Canada that you can find by searching online or by talking to people in your industry. Ask successful businesspeople familiar with this form of fundraising to introduce you to investors.

Investment is increasing

According to Canada’s Venture Capital & Private Equity Association, domestic investments made by venture capital funds totalled $1.9 billion in 2013. Venture capital firms invested heavily in businesses involved in Information Technology (IT), clean-tech and traditional sectors.

Government grants, subsidies & tax credits

Federal, provincial and municipal governments collectively offer hundreds of millions of dollars in financial incentives to small businesses in the form of grants, subsidies, loan guarantees, tax deductions and tax credits.

With a little research you may find your business qualifies for one or more incentives.

For example, if your business is involved in digital media production in Ontario, you could qualify for a refundable tax credit of up to 40% of your eligible labour and marketing expenditures with the Ontario Interactive Digital Media Tax Credit.

Search for available programs on the Canada Business Network.

Other sources

A little creativity can go a long way when it comes to financing. Consider these options to help find some of the money you need to invest in growth.

Sell unused inventory or equipment

Raise cash by liquidating inventory that isn’t selling, or sell off business equipment you aren’t using.

Lease financing

Leasing is a great way to conserve cash instead of buying gear such as office equipment, technology or manufacturing equipment.

Close down or sell a division

There may be a part of your business that isn’t strategic to your growth plans but is worth something to an outside buyer. Or, you may decide to close an unprofitable division or product line and reallocate those resources.

Review personal assets

You may decide to invest some of your personal funds in the business to support growth plans, or even borrow from the equity in your home. Be sure to speak with your personal financial advisor and your accountant to fully understand the implications of this move on your personal finances.

What’s the real secret to getting the financing you need? Plan early. Like any other part of your business, the more advance planning you do, the better your chances of obtaining the amount of financing you need, when you need it, and at rates you can afford.

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