A Guide to Starting and
Expanding Your Small Business
in Hants County

FINANCES

The money to start and operate your business will likely be patched together from a number of different sources. Many entrepreneurs take loans from banks and other lending institutions to get started or to expand. Some rely entirely on personal and family equity investments. Some common sources of debt and equity financing are included in the chart below.

Here are some basic tips that could help in your search for financing:

• Develop a financing strategy as part of your business plan: including cash flow estimates, an analysis of your break-even point, and a plan for repayment of loans.

• Get advice: from accountants, bankers, and personal contacts.

• Remember that it is common for entrepreneurs to underestimate how much money is needed, especially for operating the business.

• Be prepared to walk away from a deal you don’t like. If it’s too expensive, too restrictive, or too unwieldy, the option may not make sense for your business.

• Do not be deterred from your idea if your first financing application is refused: shop around.

The way you finance your business has a profound effect on its long-term success. Be sure to re-examine your financing plan on a regular basis as your needs change.

Equity Financing

“Equity” is the financial contribution made by owners of a company. The most likely sources of equity financing are you and people you know. However, there may be other sources to explore.

Personal Funds

Most lenders require that a business person invest some personal assets into the business. That investment can come from:

• Selling personal assets

• Cutting current personal and business expenses in order to make money available

• Drawing on savings

• Using credit cards to get cash (a costly option)

• Borrowing against life insurance

• Selling holdings or investments

• Cashing in bonds or savings plans

• Increasing a house mortgage

• Keeping a job and using a portion of that salary for the business.

“Love Money”

Many entrepreneurs rely on friends and relatives for at least a portion of their financing, either on a debt or equity basis. Using “love money” can be a tricky proposition. You don’t want to end up losing both your business and your friends or the goodwill of a family member. You should treat these people similar to other sources of financing: help them understand your business, explain how you plan to use their money, and show them a written business plan if you have one. As a group, friends and family make up more than 50 per cent of the loans to home-based businesses. Always get agreements about investments or loans in writing to save later misunderstandings.

Partners

You may consider taking on a business partner to bring some extra equity into the company. You may be lucky and find a silent partner who has little interest in the day-to-day operations of the business. However, having a partner that will become a true partial owner/manager of the business is more likely. This can bring new skills to the company in addition to an equity investment. Always sign a partnership agreement if your company will have more than one equity investor.

Venture Capitalists & Angel Investors

Sometimes seasoned and wealthy professionals are looking to put their money into promising businesses, hoping to earn a larger return on their investment than they could find in other investments.

Venture Capitalists are the more aggressive type of investor. They focus on rapid-growth businesses, and businesses that have the potential to “go-public” on the stock market or be bought-out by a bigger company. The GrowthWorks Atlantic Venture Fund is a new fund targeted at companies in Atlantic Canada.

Angels are seen as more patient investors. They typically invest in small companies as a way to minimize their taxes or satisfy personal interests. Many angels take an active role in the company’s management and strategic planning. Bankers, accountants, and lawyers may know of these types of investors in the local community. The First Angel Network aims to connect investors and entrepreneurs in Atlantic Canada.

Debt Financing

Debt financing is money you borrow to run your business. A lender takes the risk that you might not be able to repay the loan and charges a corresponding interest rate. Lenders typically evaluate four factors:

• Character – Are you the kind of person who pays your bills? Are you reliable? Can you run the business?

• Credit – Do you have a good credit rating?

• Capacity – Can the business generate enough to pay the bank back?

• Collateral – Do you have things of value which can be used to secure or guarantee a loan?

Local lenders include five banks (with many branches), the CBDC Hants-Kings , and the Atlantic Canada Opportunities Agency. These last two lenders add a fifth “C” to their evaluation. They consider benefits to the community (ie. job creation) as well as negative impacts on existing companies.

Bank Financing

Canada Small Business Financing (CSBF) Program

The Canada Small Business Financing Program seeks to increase the availability of loans and capital leases for establishing, expanding, modernizing and improving small businesses by encouraging financial institutions and leasing companies to make their services available to small businesses. Under the program, a small business must apply for a loan or lease to the financial institution (bank or credit union) or the participating leasing company of its choice. If the application is granted, the federal government will guarantee 85 per cent of the lender’s losses in the event of default. For more information, visit http://strategis.gc.ca/csbfa.

Contact a local branch of CIBC, Heritage Credit Union, Royal Bank, Scotiabank, or Victory Credit Union (see the business directory for contact information).

Small Business Financing Program

Nova Scotia Credit Unions, in partnership with the Nova Scotia Office of Economic Development, provide loans of up to $150,000 for small businesses. The province will guarantee up to 75 per cent of the loan, with the credit unions being responsible for the remaining 25 per cent. The program can cover loans for working capital or lines of credit. All types of business are eligible, except residential and commercial real estate, beverage rooms, and taverns. Visit a local credit union for additional information or to apply.

Contact a local branch of Heritage Credit Union or Victory Credit Union (see the business directory for contact information).

Hants-Kings Community Business Development Centre Ltd.

Established in 1988, CBDC Hants-Kings is one of 41 Community Business Development Corporations (CBDCs) located throughout rural Atlantic Canada. Each CBDC is an autonomous, non-profit organization dedicated to the development of small business and job creation in its communities. CBDC Hants-Kings serves Hants County through offices in Windsor and Elmsdale.

CBDC Hants-Kings Term Loans

CBDC Hants-Kings provides term loans of up to $150,000 at a minimum interest rate of 8 per cent for viable business projects. Contact CBDC Hants-Kings for more information on eligibility criteria.

SEED Term Loans

SEED loans of up to $20,000 are available with an interest rate of two per cent (2%) above prime for anyone wishing to start a new business, as well as for youth under 35 years of age to modernize or expand their business ($2000 in free training funds possible for successful applicants). Contact CBDC Hants-Kings for more information on eligibility criteria.

Women in Business Initiative (WBI) Term Loans

Female entrepreneurs are eligible for term loans of up to $150,000 at a minimum interest rate of eight per cent (8%). Contact CBDC Hants-Kings for more information on eligibility criteria.

Self-Employment Benefit Program

The Self-Employment Benefit (SEB) program provides income, counselling, and training assistance to eligible residents interested in starting their own business. Applicants must be currently unemployed. They must have an active employment insurance (EI) claim, or have been on an EI claim in the past three years, or have been on maternity / paternity leave in the past five years.

Staff work with the client to assess their business proposal, develop a business plan, and provide ongoing professional development and counseling support, including a comprehensive business development program series, as they develop their business over the course of the program. The first step for interested individuals is to have their eligibility / needs determination completed by a representative from their local Service Canada Centre (formerly HRSDC/HRDC/Manpower).

Students in Business Loans

The Students in Business program provides loans up to $5,000 with no interest (and a chance at a possible rebate up to 25 per cent) for "returning" students to start their own business. Contact CBDC Hants-Kings for more information on eligibility criteria.

Canada Youth Business Foundation Loans

CYBF loans up to $15,000 for youth between the ages of 19 and 34. This program includes a mentorship component. Contact CBDC Hants-Kings for more information on eligibility criteria.

Women in Business - Business Management Training Allowance

The Business Management Training Allowance provides financial assistance to female business owners who wish to undertake business management training in a variety of specific areas. The BMTA will finance up to 75 per cent (to a maximum of $2,000) of approved training costs. Contact CBDC Hants-Kings for more information on eligibility criteria.

Atlantic Canada Opportunities Agency

Business Development Program

The Business Development Program (BDP) is ACOA’s principal program for providing direct financial assistance to Atlantic Canada’s small and medium-sized enterprises (SMEs). It helps you to get started, expand, or modernize your business by offering access to capital in the form of interest-free, unsecured, repayable contributions. Most sectors are eligible, except retail/wholesale, real estate, government services, primary industries, and services of a personal or social nature. Eligible expenses include business studies, capital investment, training, marketing, and quality assurance. Assistance is also available to help you bid for and acquire public and private procurement contracts or to develop an innovative product or service. ACOA is able to support 50 per cent of certain capital costs and 75 per cent of other eligible costs. For information, visit http://www.acoa-apeca.gc.ca/e/financial/business.shtml or contact Brenda Bradford or Brian Banks.

Banking

Meet with a banker early in the start-up process, even if you don’t need a bank loan. Your relationship with your business banker will be important over the long term. At the very least you will want to setup a separate bank account for your business – to make deposits and write cheques. There are many other ancillary services provided by banks, including credit card merchant accounts, debit/Interac machines, and support with import/export transactions. Talk to your bank about the range of services it can offer. Consider shopping around for the best interest rates, account fees, service hours, and ancillary services. Also consider joining your local Chamber of Commerce or the Canadian Federation of Independent Business to receive discounted banking services (see Networking).

Accounting & Bookkeeping

Your bookkeeping system collects the information needed to prepare financial statements, submit tax returns, apply for loans, and make sound business decisions.

You should have no problem learning to maintain your bookkeeping system on a day-to-day basis. However, you might contact an accountant, bookkeeping company or experienced friend for assistance getting started. You can also look into taking a short course on bookkeeping. From time to time these are offered through the NSCC (locally and online), your chamber of commerce, the Job Resource Centre, FutureWorx Job Search Centre, or CBDC Hants-Kings.

Female entrepreneurs can make use of the “Business Management Training Allowance” to access accounting training.

Many small businesses successfully use paper-based bookkeeping systems. Others now opt for computer software such as Simply Accounting, Inuit QuickBooks, or Microsoft Money. These programs make bookkeeping easy, even for entrepreneurs with little accounting knowledge.

If you keep your own financial records, the advice of an accountant can still be useful (particularly at tax time). See the business directory on HantsCounty.com to connect with local accountants and bookkeepers.