Obtaining financing to start a business may be easy or hard depending on the resources available to an entrepreneur. It will be easy if he has friends and relatives who have a sufficiently large amount of money ready to be placed in the business. However, it will be difficult if he will depend solely on his marketing and advertising skills, enough to convince investors to put their money in such business. Both include big and small business financing options, so before a person chooses one, he must be knowledgeable of the small business financing options and their interest rates in Canada.
In obtaining financing, a person may consider the following small business financing options and their interest rates in Canada:
Equity investing, or shareholder investing, is a type of small financing option that utilizes the money of another in exchange of a share in the profits of the business. This is similar to a person wanting to have control in a company by purchasing shares of stock issued by it.
Using it is one of the small business financing options and their interest rates in Canada are at zero percent. This is because the return to be received by the investor will not be in the form of interest but in the form of a share in the profits of the business. However, some investors would choose to impose interest rates because that is still borrowed money. If this is the case, the interest rate usually imposed by their agreement ranges from 4% to 8% per annum.
This is the easiest option that small and start-up business owners can utilize in their businesses because they can always tap the resources of their friends or relatives. If ever they do not choose to do so, it will still be easy especially if the business will offer a substantially large amount of profits when already established.
2. Credit cards
Credit cards are one of the mostly used small business financing options and their interest rates in Canada are relatively high compared to other countries. One can get a credit card by filling up an application form and sending it to the financial institution concerned. Once it is approved, he can already use it to finance his business. However, using a credit card must be accompanied with extreme care, because spending without any control may bring bigger problems in the future.
Using it is one of the small business financing options and their interest rates in Canada is at 19.99% per annum. Other companies charge interest rates ranging from 9.99%, 11.99% 14.99% and 16.99% per annum, but these rates are usually accompanied with securities provided by equity plans. Because of the relatively high interest rate, small and start-up owners in Canada are advised to put a limit on their credit spending.
Small business owners may opt to use credit cards as long as they already have established a strong financial foundation making them capable enough to pay their liabilities. Startup business owners, however, are not advised to immediately resort to credit cards until and unless they have a sufficient amount of property to secure credit financing. Nevertheless, both are not prohibited from availing this option.
3. Mortgage loans
Mortgage loans are those which are obtained by using properties as collateral or as security to such loans. This financing option is one of the surest ways to get money, but it is also the surest way to lose the money and the property used as security if he fails to pay his obligation in time. As such, it must be considered as a last resort.
Using it is one of the small business financing options and their interest rates in Canada depend on the term for which the mortgage is taken. For a term of five years with a fixed rate, the interest rate is usually at 2.54% per annum, and for the same term but with a variable rate, the interest rate is at 2.05% per annum. The difference between the rates is to accommodate unexpected fluctuations in the interest rates.
Small business owners can use this financing option only if he has property to use as security. Start-up business owners, however, is not advised to take this option if the only property that he has is his family home. This is because even laws prevent the family home from being used as security for loans.
4. Venture capitalists
Venture capitalists are those which have a lot of money to be placed in businesses, especially those which exhibit a unique business model. However, unlike angel investors, venture capitalists usually demand a share of the profits of the business. The relationship existing between the business owners and the capitalists is usually governed by law, and as such, in the event that the former fails to comply with his agreement with the latter, he can be made legally liable.
Using it is also one of the small business financing options and their interest rates in Canada ranges from 4% to 8% per annum, depending on what will be agreed upon by the parties. The interest rates are low, but the risks associated with it are very high. Because the consideration for the investment is a share of the business, venture capitalists may eventually take control of the whole business if its owners do not exercise diligence in his efforts.
Knowing the small business financing options and their interest rates in Canada gives an opportunity for owners to run their business without thinking too much of its costs.