Business Start-up Loans: 7 Sources To Choose From

A business strategy that involves putting all your eggs in one basket is never wise—especially when financing your start-up. You can expect better weather potential downturns by diversifying your financing sources, but it will also make it easier for you to secure loans that are tailored to your particular needs.

Banks do not view themselves as the only source of funding for your business. A history of exploring different financing options also indicates your entrepreneurial prowess.

No matter what you choose, whether it’s a loan from a bank or choose someone as an investor or govt grants, each selection has its pros and cons. 

Listed below are seven of the most common sources for business start-up loans:

1. Personal investment

Start your business with yourself as your first investor, preferably using collateral on your assets or your cash. It would be best if you had this commitment to convince investors and banks that you are serious about your venture and willing to take on risks.

2. Love money

A family member, parent, friend, or spouse lends you money. These kinds of loans are referred to as “patient capital” by investors and bankers, and they are usually repaid as you gain profit in the future.

You should know the following things before borrowing love money:

• The average family and friend do not have a lot of capital
• For investment, they can ask for equity
• one should treat ‘The business alliance’ between a friend and a family with the utmost respect

3. Venture capital

It is important to remember that not every entrepreneur needs venture capital. Start-ups in sectors like information technology, biotechnology and communications will attract venture capitalist attention from the onset.

Companies seek venture capital to help them execute high-risk projects. It involves transferring shares or equity in your business to 3rd party. In addition to high returns on investment, venture capitalists expect to make money once the company goes public. Consider investing in your business with investors who can contribute knowledge and experience.

4. Angels

Angel investors have usually retired executives or wealthy individuals who make direct investments in companies. Their expertise and network of contacts and their technical and management knowledge make them sought after experts in their field. 

Because they are taking a financial risk, they are entitled to monitor the company’s operations. A seat on the board and guarantee of transparency are common terms here.

5. Incubators for start-ups

A business incubator (or accelerator) typically serves high-tech businesses by providing support at all stages in their development. Incubators also exist locally, focused on social and economic development and creating jobs and revitalizing that region.

It is common for incubators to share their facilities with other businesses and their administrative and other resources. A business incubator might provide free use of its laboratories to new businesses to test their products and develop them more inexpensively before production begins.

6. Government grants and subsidies

Financing options provided by government agencies include grant and subsidy funding options your business may qualify for. Government programs are listed at both the provincial and federal levels on the Business Network website.

7. Lending by banks

Small and medium-sized businesses are most likely to receive funding from banks. Please consider how each bank has its unique advantages, such as a specialized payment system or personalized customer service. Find a bank that meets your needs by shopping around.