Beyond the Bank: Exploring Alternative Financing for Canada’s Family Businesses
When most family businesses in Canada think about securing financing, their first instinct is to approach a bank. However, in today’s rapidly evolving financial landscape, traditional bank loans are no longer the only—or necessarily the best—option. A wave of alternative financing models is emerging, offering family-owned enterprises more flexibility and creativity in how they fund their growth. These models are particularly critical as Canadian family businesses face challenges in scaling, modernizing, or simply navigating the economic uncertainties brought on by the pandemic.
A key issue for family-owned businesses in Atlantic Canada is the heavy reliance on debt financing due to a lack of equity financing options. The Canadian Institute for Research on Public Policy highlights that Atlantic Canadian SMEs are more dependent on commercial loans and government lending agencies compared to other regions. Furthermore, debt financing constitutes the majority of financial capital accessed by these businesses, with commercial loan approval rates lower and interest rates higher than in other parts of Canada. This heavy reliance on debt can leave businesses exposed, particularly in a rising interest rate environment.
In recent years, private equity and venture capital have gained traction as alternative financing sources for family businesses. These funding sources, traditionally reserved for tech startups, are increasingly being used by businesses in more conventional sectors such as manufacturing, retail, and services. While only 2% of Atlantic Canadian SMEs reported using venture capital, those that do have found it invaluable in enabling growth without taking on excessive debt.
Another emerging option is hybrid financing, which blends debt with equity investments. This model allows family businesses to raise the capital they need without diluting ownership or burdening themselves with high levels of debt. Yet, despite these new avenues, businesses in Atlantic Canada face significant hurdles. Venture capital and angel investors are relatively scarce in the region, which limits the availability of these alternative financing sources.
To overcome these challenges, family businesses must consider a more diversified approach to financing. Government-backed programs and in combination with other initiatives can help fill the gap where traditional lenders fall short.
Ultimately, the key to unlocking growth lies in understanding the full range of financing options available and choosing the one that best fits the unique needs of the business. As capital markets continue to evolve, family businesses that are flexible and open to exploring new opportunities will be best positioned to thrive in the competitive Canadian landscape.
These issues and many more will be addressed at FBA’s upcoming Capital Clarity: Unlocking Growth Together event which will happen from 8:00 am – 12:15 pm on October 18 at Brightwood Golf and Country Club in Dartmouth. Representatives from TD, BDC, Grant Thornton, HanMac Capital, Invest NS and other financing and lending institutions will be on hand to discuss the current Capital Terrain and how you can prepare for your business growth and expansion.
LIMITED SPACE so confirm your seats ASAP – REGISTER HERE.
~ by Robert Patzelt, ICD.D, KC, Chair, Family Business Atlantic Advisor Committee