Funding Factors for Small Businesses in Canada
As a small business owner or startup entrepreneur in Canada, you have most likely considered applying for funding or financing at one point. This means that you probably heard the term funding factors.
If not, funding factors are what determine whether you and your small business are eligible to get funding or financing.
Simplifying the meaning of funding factors, funding factors are simply rules or the qualification criteria that must be met before a bank, a private investor, or a government funding agency says yes to approving funding or financing for your small business.
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Why Funding Factors Matter
Think of it like this: If you are a bank providing mortgages and have no eligibility criteria that have to be met in order to provide somebody with a mortgage to buy a $1,000,000 house, how would that work for your bank?
You would probably get a ton of customers signing up for mortgages, but long term, giving a mortgage to somebody who does not have the ability to pay the minimum payments, or maybe is unemployed, means the mortgage would be lost and the bank would lose.
So it sort of makes sense for big institutions to protect themselves and provide the financing or funding only to those who need it, who can benefit from it, who can show success, and of course those that meet the criteria.
When it comes to funding factors for getting a business funded, the same logic applies.
Government funding agencies, for example, have funding factors that have to be met by business owners in order to do a few things: first, to ensure that only those who have a chance of succeeding get it, and second, to ensure that the best candidates get the help.
Main Funding Factors to Consider
So what are the main funding factors that matter when applying for your small business?
It is important to note that most sources of funding, such as banks, private investors, or government agencies, have their own unique criteria or funding factors that have to be met. At times, every single source of funding may have its own funding factors.
The general funding factors to consider include:
- Do you have a business plan?
- Where is your small business located?
- What is the purpose of the funding?
- What industry is your business in?
- Time of the year you apply
These five factors are the most general that the majority of funding sources look at in order to determine eligibility for funding. As mentioned, on top of these general funding factors, there may be additional factors that vary from source to source.
Explanation of Each Funding Factor
Your business plan can help a funding agency determine if they would want to invest in your business and in you.
Your business location can help determine which funding programs or agencies are available to help provide the funding. Certain programs, agencies, or investors only provide funding in specific areas.
The funding purpose is important as it helps determine what you need funding for, which ultimately helps figure out who, whether a program, agency, or investor, is available to provide the funding. Remember that not all funding sources fund every single funding need.
Your industry is important as it determines which funding source will be available to provide you with the funding. Keep in mind that there are many sources for each industry. For example, a funding agency that helps only tech sector businesses does not provide funding for those in the agriculture industry, and vice versa. Knowing your industry and searching for funding based on that, along with other factors, will help.
Time of the year that you apply for funding is also critical, as it helps determine when the slow and busy seasons are for applying. Sometimes the best time of the year is at the start of the year, while other times it is at the end. This depends on the program or the investor you are applying to. It is important to know program deadlines, as some government funding programs only provide funding up to a certain time of the year.
Final Thoughts
Following these general funding factors will only get you so far, but it will give you a better idea of how your small business can get funding. To go a step further, learning more about the funding source will help you determine the additional funding factors.