How to Expand Your Business With New Capital

As your business grows, your need for funding doesn’t diminish. Chances are, you’ll need some form of capital to introduce new products or services, expand into new markets, hire or contract additional help, expand your facilities, or purchase new equipment and machinery.

Finding growth financing for your business should be easier than start-up financing because your business has a demonstrable history of success. Where you’ll find the financing you need will depend on:

  • Your business objectives
  • The health of your business
  • Business ownership structure
  • Your ability to plan
  • Your ability to convince lenders to believe in you and your vision for your business

Steps to Secure Growth Financing

Follow these three steps to improve your chances of successfully securing the financing you seek.

Step 1: Have a Written Business Plan

Very few lenders, including banks, the government, or even friends or family members, will lend you or give you money if you don’t have an updated business plan that clearly explains how you’ll use the money and how you’ll pay it back.

Step 2: Know What Type of Financing is Available to You

You can raise new capital to grow your business in several ways:

a. Bootstrapping

Bootstrapping means finding the means within your company to come up with additional funding. For example, you can look at ways at reducing your expenses so that you can use your profits or retained earnings to grow your business, instead of borrowed money.

You can also find new revenue streams and direct the additional profits to your growth initiatives.

  • If you own your facilities, consider earning passive revenue by renting out your facility when it’s not in use.
  • Allow other companies to advertise on your website.
  • Re-position your products or services to appeal to new markets to increase sales.
  • Use a discounted pricing strategy or a promotional campaign to increase sales.

The main advantage of bootstrapping is your business will have more equity (as defined by assets minus liabilities) because of your lower debt obligations. A lower debt load also makes it easier to raise additional capital should you need it. However, you want to be careful that you don’t get into a negative cash position by being undercapitalized.

b. Tapping into Private Sources

You can use your personal savings, credit cards, lines of credit, or personal loans to finance your growth, as you might have done during start-up. You can also ask friends and family to help finance your expansion plans. Be sure to keep them informed of how you are using their funds, and set up a repayment schedule.

c. Taking Advantage of Tax Breaks, Subsidies, and Incentives

The provincial and federal governments offer tax breaks, subsidies, and incentives to businesses for initiatives that they feel are priorities. The Government of B.C. tax incentives for small business can be found on the Ministry of Finance website. You can find information on federal programs at the Canada Business website.

You might be eligible for federal and provincial government programs to help you finance your growth.

Since the application process varies from program to program, you should contact the coordinator of the program that you’re interested in to find out what the specific application requirements and process are.

d. Applying for Commercial Loans

As an established business, you may have more success with banks. Make sure your business plan is up to date, shows your ability to manage your loan payments, and includes a clear description of your business and contingency plans. Be aware that banks are usually reluctant to make unsecured loans, so you must be willing to put up the collateral needed to get the loan.

Above all, make sure you maintain a good relationship with your lenders by always meeting your current loan obligations so that they are willing to loan you more money on good terms when you need it.

e. Factoring

You might want to consider factoring, which is a financing method in which a business sells its accounts receivable at a discount to a third-party funding source to raise capital. Factoring is very common in certain industries, such as the clothing industry, where long receivables are part of the business cycle.

In a typical factoring arrangement, you would make a sale, deliver your product or service, and generate an invoice. The factor would buy the right to collect on that invoice by agreeing to pay you the invoice’s face value less a discount–typically 2% to 6%. The factor pays 75% to 80% of the face value of the receivable immediately, and forwards the balance to you (less the discount) when your customer pays the invoice.

You can find factors listed in the telephone directory and in industry trade publications.

f. Finding Investors or Other Equity Partners

Are you willing to share the ownership of your business? If so, you can look into finding equity investors to finance your business growth.

Angel investors are high net worth individuals who ideally have knowledge or expertise to complement your own, and who have money to invest.

  • The B.C. Angel Forum introduces established companies to private equity investors. If you’re seeking equity financing of $100,000 to $1 million, you can apply to present your business and your growth strategy to pre-screened private and corporate investors. Contact the B.C. Angel Forum to see if your business would qualify.

Venture capitalists are professional managers that manage venture funds from high net worth individuals and corporations, or from institutional investors and government funds.

  • The Canadian Venture Capital & Private Equity Association (CVCA)represents the majority of private equity companies in Canada. The CVCA provides venture capital through investment in early stage companies, mostly in technology businesses. Contact the CVCA to learn more about what they have to offer and to find out if your business would qualify.
  • The Canadian Financing Forum matches North American venture capitalists and corporate investors with serious entrepreneurs looking to build world-class technology companies. Visit their website for more information.
  • The B.C. Government Venture Capital Program allows a small business to accept equity capital directly from investors, and enables investors to be actively involved in the growth of the small business. Refer to the Ministry of Jobs, Tourism and Innovation website for more information and to see if your business would qualify.

But, before going down this road, it is important to know the BC laws that apply to any company or other entity that raises money from investors. To find our more read our article: Seeking Equity Investment? Know the Rules

Step 3: Find Financing that Applies to Your Specific Situation

Here are some of the most common ways in which your business might be expanding, and some specific resources and suggestions to help you find the financing you need:

a. Hiring Employees and Contractors

  • B.C. Employment and Labour Market Services. If you’re expanding your business and creating new employment, you might be eligible to receive subsidies that help with your human resource requirements, and offset labour force adjustments. The two programs that are available for employers are Targeted Wage Subsidy and Labour Market Partnerships. Refer to the provincial website for more information on these two programs.

b. Training New and Existing Employees

  • Human Resources and Social Development Canada (HRSDC). If you are hiring and/or training your employees, you could be eligible for subsidies to help cover the costs. Refer to the HRSDC website for a listing of the available programs and to see if your business would qualify.
  • B.C. Training Tax Credit Program. If you’ll be hiring and training apprentices, you could be eligible for refundable income tax credits equal to 10% of the salary and wages you pay, up to $4,000 annually per eligible apprentice. Please refer to the provincial website for more information.

c. Property, Plant, and Equipment Improvements or Expansions

  • Canadian Small Business Financing Program. Under this program, you could be eligible for term loans to help finance the purchase or improvement of your capital assets. Refer to Industry Canada’s website for more information.
  • Business Development Bank of Canada (BDC). If you’re expanding your business, you might be able to obtain growth financing through BDC.Contact BDC for more information on the programs they offer and how to apply.

d. Research and Development

  • SR&ED Tax Incentive Program. If you’re investing in research and development work done in Canada, your business could be eligible for Scientific Research and Experimental Development (SR&ED) credits. Refer to the Canada Revenue Agency website for more information.
  • Industrial Research Assistance Program (IRAP). If you’re planning to grow your business by using technology to commercialize services, products, or processes in Canadian and international markets, you could be eligible for IRAP funding. Refer to the National Research Council of Canada website for more information.

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