What Kind of Financing Is Best? Consider Your Stage of Business
Depending on the stage your business is in, different types of financing are available. As your business moves along the lifecycle from start-up to a mature business, your risk to a lender or investor generally decreases and you have more options for financing. If you’re considering different sources of financing for your business, make sure you match your stage of business with the right colour of money.
Green Money
At the Concept/Seed stage and the Start-up stage, you are considered high risk to lenders, and chances are you’re not eligible for bank financing. Green money, or ‘patient’ money, is likely your best bet at this stage and may come from sources such as:
- Family and friends
- A business loan from a development lender like Women’s Enterprise Centre
- Angel investors – however, these investors are typically looking to invest in high-growth start-up firms where they have a chance of earning a significant return on their investment in a short period of time.
- Crowd funding
Gold Money
Gold Money, or government assistance, is money that is essentially ‘free money’i. SR&D Tax Credits, Self-Employment Grants, and NRC IRAP are sources of gold money. This type of money can be obtained at variable stages of the business lifecycle.
Red Money
Once you’ve got a proven track record and a few years of historical financial statements showing positive trends (i.e. growing revenue and profits), you are much more marketable to traditional lenders like banks, credit unions and leasing companies. This money is considered to be Red Moneyii . It’s not free, nor very patient, but you don’t have to give up part of your business to get debt financing!
There are lots of considerations with financing, and you should definitely take the time to weigh out all your options to see if you’re eligible for Green, Gold or Red money. Contact a WEC Business Advisor to help you understand the different types of debt and equity financing available for your business.