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How to finance your business in Canada as a newcomer

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How to finance your business in Canada as a newcomer

Alongside international students and economic migrants, Canada welcomes many newcomers who want to start their businesses. If you’re new to the country and are looking for funding, this article will guide you on how to finance your business in Canada as a newcomer.

What to do before you seek out funding for your business

Before you go out into the market and seek funding, small business expert Roger Pierce recommends doing a cost breakdown of your likely expenses: a startup budget, recurring expenses, and a contingency fund for emergencies: all businesses need cash, but the question is how much.

“Self-employment is what I call the hottest career choice today,” he says. “There’s a lot of reasons: you can be your own boss, set your own hours, you get to pursue your passion, and you get to work with people you like – you can’t do that in a job – and you get to help customers. That’s what your business is all about.”

Your startup budget includes capital for essentials (equipment and vehicles, renovations, and a website, for example) while setting aside funds for at least six months’ worth of operating expenses: rent, wages, marketing, utilities, supplies, and other costs.

To deal with emergencies, add on another 10% – you never know when you might need it!

Before you shop around for funding, Pierce also recommends five steps that you need to follow, if you want to finance your business in Canada as a newcomer

  • Write a business plan
  • Know your budget
  • Include repayment in your cash flow statement
  • Know your options
  • Be prepared for rejection

Also read: Martin Basiri: ApplyBoard’s CEO reflects on his journey in Canada 

What sources of funding are available to you?

There are broadly seven sources of funding that are available to you if you want to finance your business in Canada as a newcomer:

  • Your own money: Your savings; earnings from your current job; any loans or credit lines you’re entitled to
  • Family and friends: Are you asking them for a loan or an investment? Don’t ask them for too much, and make sure you have an agreement in writing
  • Financial institutions: You need to give them a business plan and a personal guarantee of repayment. You’re also going to need to invest some of your cash before approaching them. Make sure you look around for the best deal
  • Government programs: Gain access to grants and contributions, loan guarantees, wage subsidies, and tax refunds and credits. 
  • Investors: Angel investors invest thousands and venture capitalists invest millions, but to secure funding from them, you need to show proven sales, a growth business plan, and a proper business pitch
  • Customers and suppliers: With cash essential as you move to finance your business in Canada as a newcomer, get money upfront from customers, and pay your suppliers later. Open a customer credit account with the latter, and offer them generous terms
  • Crowdfunding: earn donations from supporters, early-stage customers, and donors. Sites like GoFundMe or Kickstarter could help you here

Make sure you combine the sources of money available to you, research your financing options, and most importantly, persevere…never give up!

Are there free resources available to help finance your business?

Free resources are a godsend when you’re looking to finance your business in Canada as a newcomer. Roger Pierce’s website contains resources for business financing, tools, and calculators, among other free resources.

In the early days of your business, start small, raise smaller amounts of money, bootstrap to save money (i.e. use your funds where available), fund your business with the sales you make, and work with a mentality of underestimating revenue and overestimating expenses.

“There really is no income ceiling. For self-employed people, you know, in a job, they tell you what you’re gonna make, you might make some bonuses, but as an entrepreneur, there’s no upward, upward ceiling,” adds Vance. “In fact, in North America, 75 percent of all millionaires are self-employed. 

“I think entrepreneurship is the most respected occupation in Canada. A lot of people want to be entrepreneurs, and we see that every day, more and more people are joining our ranks.”

Also read: Small Business Advice for Newcomer Entrepreneurs in Canada

Managing your finances and taxes as a small business owner

Seeking opportunities to finance your business in Canada as a newcomer is an exciting journey, but there are obligations that you need to comply with as a business owner, such as taxation, bookkeeping, payroll, monthly filings, and insurance policies. You also need to file corporate and/or personal taxes by April 30 each year.

“It is very important to hire a qualified tax advisor so they can guide you on how to present your taxes to the government in the most legit manner so that you get assessed correctly, you pay your share of taxes, and the government knows about your state of affairs,” says Manish Aggarwal, vice president of finance at Sigma Group of Companies.

“Even if your business isn’t earning and you are running at a loss, you still need to file taxes,” he adds. “At some point, your expenses will be offset by future revenues. The initial years are extremely important as a business owner so that both you and the government know the state of your business. In the years to come, you won’t have to pay as much tax, because your previous losses have offset those payments.”

What documents do you need for funding?

Start approaching lenders early, because there are processing times and documentation requirements. If you need money in January, for example, approach them in October. 

Paperwork you need at the outset includes:

  • Credit check on business owners
  • Business-related financials
  • Bank statements for six months
  • Tax statements for the previous year
  • Business and growth plan for the coming years

“It’s very important that someone helps the business with putting projections on paper, in a manner that is acceptable and reasonable to the bank,” he adds. “You can’t just show that you are going to make millions, and there is no sign of money in the bank. That is not considered reasonable. What you are showing as reasonable has to make sense, or resemble a little bit with your past three months.”

Depending on your initial assessment, lenders may ask you for more information, including but not limited to:

  • Key staff
  • Resumes
  • Profiles
  • Where do you source your product from
  • Costing
  • Sales
  • Business hours and operations

Also read: Are you a newcomer in Toronto and looking to start your business?

How is your credit score involved?

When someone goes to the bank for money in the beginning, the bank assumes that your score is the business’ score. Unless it is such a large corporation, and it has such a solid background, then they stop checking the personal scores of the owners. 

“Unless the business reaches that stage, for banks, you and your business are pretty much the same thing,’ says Aggarwal. “This is why we say that small businesses are the backbone of society because those small businesses are nothing but a reflection of what the owner is doing.”

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