Keep your company

Keep your company

Q: I don’t want to take financing from investors, but I still need money to grow my business. What can I do?

A:

There’s money in Canada for virtually every business – without giving up ownership.

Funding sources that don’t require an entrepreneur or owner to give up ownership fall into two broad categories: capital markets (private sector solutions) and government markets (public sector solutions). One private sector source is corporate strategic investors. Many invest in early stage companies that are building solutions strategic to their own. For example, if you’re designing a mobile app, BlackBerry might be interested. While “corporates” may not write a cheque – preferring to wait and see whether your product “has legs”– they might offer you space. Other benefits of corporate strategic investors go well beyond money, as they are often your best path to market credibility and take-up.

For companies with products, revenue is a second financing source, opening up lending markets and serving as security for loans. For example, royalty-backed loans can be an alternative to giving up shares. A third approach to private financing is non-equity crowd-funding, which has emerged as an immensely popular way to raise money without diluting ownership. Product promises and incentives, such as advance sales of a prototype, become the basis of your appeal to the crowd, rather than your company’s stock.

Government or public sector financing sources are often overlooked, yet, in Canada, provide approximately $30-billion in support for business each year. Grants account for the vast majority of this funding, while tax credits and vouchers, which often provide free services from universities and colleges, are other instruments used by governments to flow funding and support to business. Canada has more than 4,000 of these business support programs, none of which require giving up ownership in your company. In sum, Canada has a rich array of funding sources for entrepreneurs and business owners that leave your ownership untouched.

- TERI KIRK, PRESIDENT AND CEO OF THE FUNDING PORTAL INC., TORONTO. THE FUNDING PORTAL IS A WEB-BASED SERVICE THAT HELPS BUSINESSES SECURE PRIVATE AND GOVERNMENT FUNDING.

Illustration by Graham Roumieu

Q: I do a lot of business with China. What is the renminbi (RMB) trade hub I’ve been hearing about and, how will it help my business?

A: Basically, the Canadian RMB trading hub lets Canadian companies conduct currency exchange and trade operations between the RMB (the official currency in China) and the Canadian dollar (CAD) directly, rather than going through an intermediary currency.

Being able to directly trade in RMB with your Chinese counterparts would certainly reduce your currency risks. Presently, most trade transactions with China are settled in U.S. dollars (USD), exposing Canadian businesses to both USD/CAD and USD/RMB foreign exchange fluctuations. RMB trade should also reduce transaction costs by removing multiple currency conversions. If you have U.S. or other foreign competitors, that would help level the playing field.

It’s also friendlier to your Chinese customers and suppliers who increasingly want to do business in RMB, a rapidly growing international trading currency. Plus, your Chinese counterparts will be more open to offering a discount and accepting better payment terms if you remove their exchange risks by trading in RMB. A global survey by HSBC in 2014 found that more than half of Chinese businesses would offer Canadian importers discounts of up to 5 per cent if Canadian banks could convert Canadian dollars directly into Chinese currency.

Canadian financial institutions will also be able to offer a wide variety of RMB-dominated financial services or products, so you might be able to invest into an RMB bond with surplus RMB cash from your RMB trade. Chinese investors will certainly appreciate the option to invest in Canada directly in RMB, thereby giving Canada a competitive advantage in encouraging investments coming from China (the world’s second-largest economy).

- VIVIAN CHEN, PARTNER, TAX, KPMG LLP