Over the past several months, Ontario has been feeling the pressure of the current economic downturn. With the unstable economy, many people have faced layoffs or the stress of tenuous job security. But there is one statistic that suggests there is opportunity in this era of doom and gloom. Self-employed businesses are on the rise. As people leave their jobs, they are deciding to become their own boss and take the future in their hands.
Business start-up can be an expensive process and there are many factors that a person must consider that can have far reaching consequences throughout the business' life. Perhaps the most critical step is to obtain the financing necessary to start operations and begin generating revenue. In a perfect world, the entrepreneur would be in a position to fully finance the start-up phase of the business. This is not usually the case, however, and external sources of financing are often necessary.
The first stepg is to learn what resources are available. When people consider obtaining financing for a business, they automatically think of taking out a loan from a bank. While the bank is a suitable source of funds, there are other avenues that should be investigated in an attempt to obtain better terms of financing. The provincial and federal governments have many programs that are designed to encourage business and job creation. The following are a sampling of the resources available:
Northern Ontario Heritage Fund Corporation (NOHFC)
The NOHFC has programs for potential entrepreneurs that will provide grants of up to $125,000 if the eligibility and funding requirements are met. Other programs include the Northern Ontario Young Entrepreneur program which is designed for residents in Northern Ontario between the ages of 18 and 29.
Community Futures Development Corporations (CFDC)
The CFDCs are local boards funded by FedNor and the Government of Canada to provide loans of up to $150,000 based on commercial terms. The members of the board that make the funding decisions are from the community and are able to consider local challenges that your business may face. The CFDCs also offer services to small businesses and entrepreneurs that range from business counseling to training. Currently there are 24 CFCDs in Northern Ontario.
Ontario Self-Employment Benefit (OSB)
If you have established an Employment Insurance claim or your Employment Insurance benefits period has ended within the last three years, or you are re-entering the labour market because of a maternity/paternity benefits claim paid within the last five years, you may qualify for this program. The OSB program provides intensive business training and financial support for those qualifying individuals that wish to start a new business.
Business Development Bank of Canada (BDC)
The BDC offers flexible financing solutions for start-up businesses. Established by the Government of Canada, the BDC is focused on small to medium sized enterprises. Their financing options include flexible repayment terms to take into account seasonality of cash flows, choice of fixed or floating interest rates, and partial early repayments without penalty. Perhaps the greatest benefit to the BDC is their business advisors and their ability to work with entrepreneurs to improve the business’ operations and potential.
This list is by no means exhaustive. Consider yourself and characteristics that may set you apart and help you meet certain qualification criteria for specialized programs. Specific funding is available for Aboriginals, youth, immigrants, youth immigrants, etc. that wish to start a business. The financing is available, but the onus is on the entrepreneur to seek it out.
Identifying the potential financing alternatives you qualify for is the first step to establishing your start-up business. Each potential funder has a number of criteria that must be met related to eligibility and the entrepreneur’s personal start-up investment. Almost all funders will require a business plan that details your expectations and assumptions on how the business will operate. Tailoring your business plan to the funders’ requirements can go a long way towards streamlining the approval process.
The amount of work done in the start-up phase of business can have a significant effect on the ability of the business to survive in this tough climate. Selecting the right type of financing for your business and having a well thought-out business plan are key to establishing the groundwork for the business. As the entrepreneur, you should seek advice from professional advisors that can assist you in accomplishing your goals. Their experience can prevent issues from arising and they will be able to identify additional items for your business plan.
Tony McGregor is a chartered accountant and manager of the BDO Dunwoody LLP Sudbury office.