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Guide to Start a Business

Chapter 5 - Financing Your Business

You should now have a good idea of the amount of money you will need to start your business, including start-up costs and money set aside for emergencies (contingency allowances).

The first step in your search for financing is to understand the pros and cons of the two ways you can fund your business:

  • Equity Capital – Also called equity financing, is the money provided by the owner(s) of the business.
  • Debt Capital – Also called debt financing, is the money provided by outside funders. It is borrowed for a set period of time and is paid back with interest.

There are many sources of financing available for a small business in the NWT. Which type of financing is right for you will depend on the type of business, the amount of equity you have already contributed to the business and whether you can get funding from another source.

Your business plan is the most important piece of information you need to obtain financing. The main sources of financing are:

  • Equity capital
  • Private sources of funds
  • Commercial loans
  • Government and not-for-profit financial assistance

Equity Capital

You will have to invest in the business you are starting. Your investment, also called ‘equity capital’, can take the form of money, other personal assets (land, buildings or equipment) or ‘sweat equity’ (your work in getting the business up and running).

If you cannot provide the entire amount required to start a business you will have to obtain additional funding from other sources.

Private sources of funds

Friends, family or business associates who might invest in your business or lend you money are all potential private sources of funds. It is important to give them the same information about your business that you would give a commercial, government or not-for-profit funder.

A common form of private financing is to share ownership of your business in return for an investment. Before you make this kind of an agreement, you should get advice from your lawyer and accountant. It is important that everybody involved in a private financing agreement is aware of the potential losses or obligations that could result from the operation of the company. It is also important that the written agreement is clear and protects everyone involved as much as possible.

Business Tip

Approaching Funders: Know how you will finance your business. Visit potential funders prior to seeking financing to gather information. Ask your funder what they will want to see before you apply for financing.

Banks generally offer a wide variety of loan programs. The interest rate they charge will depend on the risks they see in your business. When you are choosing a bank, shop around to pick the one that will best meet your needs. You may also want to ask others about their experience with different banks. Please refer to your local telephone directory for contact information for banks in your area.

Before you approach a funder for money for your business, you should have a very clear idea of exactly what you want the money for. Your business plan will help you explain your needs and plans to the funder.

Loans are either:

  • Short-term – Debts that can be repaid in one year are considered short-term loans. Short-term loans are usually for financing inventory, accounts receivable or general operations. They are often done through a ‘line of credit’ and the amount of the loan changes depending on your needs. Short-term loans are usually available from banks at current interest rates.
  • Long-term – Debts that will not be paid off within one year are considered long-term loans. These loans are usually used for financing fixed assets, such as buildings or equipment. Long-term loans are also called ‘term loans’ because they are for a specific period of time. Interest rates for long-term loans are based on your particular circumstances.

To protect themselves, funders will require collateral. Collateral is something that you promise to give the funder if you cannot repay your debt. If, in the future, you are unable to pay back the money you owe, the funder would acquire your collateral in place of what you owe them.

Collateral can include:

  • A written promise from somebody else to pay your debt if you cannot (called a personal guarantee)
  • A life insurance policy that can be surrendered for cash
  • Accounts receivable
  • Investments that can be exchanged for cash, such as bonds or term deposits
  • Property
  • Other assets

To further protect themselves, funders may also set some rules about what you cannot do (restrictions) and what you must do (requirements) while you have a loan with them.

Requirements can include:

  • Maintaining a minimum level of working capital
  • Providing financial statements at regular times

Restrictions can include:

  • Not being allowed to sell the company or any of its assets without the funder’s approval
  • Not being allowed to get other loans without the funder’s approval
  • Not being allowed to provide a personal guarantee for somebody else’s loan
  • Limitations on the type of land, building or equipment you can buy
  • Not being allowed to lend money or advance money to others
  • Limitations on the dividends or other types of payments you can make to investors (shareholders)

Government financial assistance

Many governments and not-for-profit organizations offer financial assistance to small to medium sized businesses. Generally, the funding they offer falls into four categories:

Small amounts of money that you do not have to pay back. Each organization has specific types of projects they will fund. There may be limitations on who can apply for and receive funding.

Have to be repaid with interest, the same as with a commercial lender. Each organization will have limits on how much they can lend you. These organizations are usually trying to support small businesses or economic development, so they have different requirements and restrictions than commercial lenders.

A long-term source of funding that is exchanged for shares in your company. When you receive an equity investment, you usually agree to pay dividends to the investor and to buy back your shares from the investor at specific times. Some organizations may expect to have a say in how you run your business in exchange for their investment.

Documents that commit the organization to pay your debt to a supplier if you are not able to do so. They allow you to buy inventory on credit, rather than having to pay up front. Standby Letters of Credit can also be used for contract security on construction projects and in other similar situations. If you are not able to meet your commitment and the organization has to pay for something for you, the amount paid usually becomes a loan that you will have to pay back over time.

Business Tip

Small Business Funding: It is important to look at your cash forecasts and decide whether you will have enough resources or whether you will need to raise more. Don’t forget to build in a contingency fund for unforeseen circumstances.

Department of Industry, Tourism and Investment (ITI)

The Department of Industry, Tourism and Investment (ITI) within the Government of the Northwest Territories (GNWT) has focused on finding ways to promote diversification of the northern economy while continuing to promote and support development opportunities in all communities.

This department offers Support for Entrepreneurs and Economic Development or SEED.  There is funding available under different policy areas including:

  • Operational Support for Businesses Affected by Wildfire Evacuation
  • Entrepreneur Support
  • Sector Support
  • Community Economic Development
  • Micro Business
  • Business Intelligence and Networking
  • Strategic Investments
  • Support for Film
  • Prospecting Support

More information about the SEED program and the different areas is available here:

To determine your eligibility for SEED funding, Community Economic Development Officers or ITI Regional Offices will be able to answer questions about the programs available and what you need to meet application requirements.

Department of Industry, Tourism and Investment (ITI)

Find contact information for the regional offices here:

Prosper NWT

Prosper NWT (formerly known as the Northwest Territories Business Development and Investment Corporation or BDIC) supports the economic objectives of the Government of the Northwest Territories (GNWT) by encouraging the creation and development of businesses, providing financial assistance and directly investing in businesses.

Prosper NWT also provides information to businesses and members of the public. Financial programs include: short and long-term loans, Standby Letters of Credit, working capital guarantees, venture investments, contributions and subsidiary companies. 

Check out this website to learn more about Prosper NWT's programs and services.

Community Futures Organizations

The Community Futures Program is a community-based economic development initiative delivered in each region by Community Futures Development Corporations.

These Corporations operate independent of government as non-profit organizations and are overseen by volunteer Boards of Directors representative of the regions and communities that they serve.

While each Corporation has some flexibility to set its own priorities for economic development in its respective region, they each offer a core set of services including:

  • Business loans and loan guarantees
  • Counselling and assistance for entrepreneurs beginning or expanding a business
  • Wage subsidies for those who are unemployed and want to start a new business
  • Access to Canada Business NWT internet sites and business information services

All 33 NWT communities have access to the Community Futures Program. These organizations deliver Community Futures Programs in the Northwest Territories. They are represented by the NWT Community Futures Association or NWTCFA.

Northwest Territories Community Futures Association (NWTCFA)

Akaitcho Business Development Corporation
Tel: (867) 920-2502
Deh Cho Business Development Centre
Tel: (867) 695-2441
Thebacha Business Development Services
Tel: (867) 872-2795
Western Arctic Business Development Corporation
Tel: (867) 777-2836


Southwest Territorial Business Development Corporation
Tel: (867) 874-2510
Sahtu Business Development Centre
Tel: (867) 587-2016

Métis Dene Development Fund (MDDF)

The Métis Dene Development Fund (MDDF) was originally mandated to provide loans for Dene and Métis businesses and now the fund supports all businesses across the NWT.

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Business Development Bank of Canada (BDC)

The BDC, a Crown Corporation of the Government of Canada, offers financial, investment and consulting services for Canadian small and medium sized enterprises. 

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Government of Canada - The Canada Small Business Financing Program

The Canada Small Business Financing Program (CSBFP) seeks to increase the availability of loans for establishing, expanding, modernizing and improving small businesses. It does this by encouraging financial institutions to make their financing available to small businesses. The program helps you secure up to $1 million from your financial institution by backing your loan with a government guarantee.

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Canadian Northern Economic Development Agency (CanNor)

The Canadian Northern Economic Development Agency (CanNor) supports the growth and expansion of northern businesses, including small and medium-sized enterprises, through training, advisory services, and through dynamic and flexible contribution programs for businesses and communities that build capacity. The objective is to encourage a competitive, diverse northern business sector with a strengthened capacity for innovation.

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A final word

Most funders, whether they are banks, private investors or government organizations, require the same kind of information to make their decision. In most cases, the more information you provide, the better the chance that you will obtain financing quickly, which can be crucial in making the most of a business opportunity. If you have completed a business plan, you will be able to meet the requirements of most funders.

When making your proposal to potential funders, consider the following tips:

  • The funder should be given plenty of time for decision-making.
  • When presenting your proposal for financing, briefly introduce yourself, your business and the purpose of your presentation. Outline your financial requirements and how the financing will be used. The funder will ask questions based on your proposal and confirm the facts with you.
  • If your proposal is rejected, find out why. What were the weaknesses? What was lacking? This should provide you with valuable information for reworking the proposal before approaching another source.

Business Tip

Approaching Funders: Develop realistic financial forecasts for income statements, cash flow and balance sheets for three years. Forecast monthly for the first year.