Has your early-stage technology company begun researching government funding programs only to realize that most grants and loans are not available to startups? This is a common problem among small, innovative companies within the first few years of operation. Despite there being many grants and incentives available to support R&D, technology adoption, exporting, and workforce development, companies often need to reach a certain point of maturity before they can submit a successful funding application.
Does this mean that startups are ineligible to receive government funding programs? No! But there are some rules and considerations worth knowing to save time and resources.
Canadian government funding is generally reserved for mature companies with a proven track record of profitability. This includes companies that are incorporated and can show financial statements where operating revenues are greater than operating expenses. Since startups cannot generally meet these two requirements, the selection of funding programs they qualify for is limited – but not non-existent. Some programs provide support for startups; these are the incentives that technology innovators should seek and apply for.
There are three broad types of government programs that offer financial contributions. They include:
- Government Grants: Non-repayable funding for upcoming projects;
- Government Loans: Repayable funding for upcoming projects; and
- Tax Incentives: Retroactive funding for past projects.
While tax incentives are generally seen as an entitlement to all businesses and can be claimed annually, government grants and loans are awarded based on merit and need to be applied for. When companies apply for government grants and loans, they and their projects are subject to review by government agencies who have the mandate to only select the best projects from qualified companies. This can sometimes categorize startups and scale-ups as “uncompetitive” and therefore rejected for funding.
Although most government grants and loans maintain unique eligibility criteria, most government funding programs require that businesses:
- Are incorporated in Canada for a minimum 2 years;
- Can show profitability for at least 1-2 years; and
- Have at least one full-time, payroll employee.
While research and development funding programs (like IRAP) require applicants to be incorporated over multiple years, hiring and training grants tend to be more accepting of early-stage companies. Workforce development is commonly needed for innovative startups to grow, and the eligibility criteria for these programs is flexible enough to support early-stage applicants.
Consider tapping into incentives like the Canada-Ontario Job Grant (for training) and other grants to hire student interns or recent post-secondary graduates. This is the best way to get your first funding win.
Ready to get started with funding? Download the Startup Funding Checklist for key action items to position your business for funding success.
Mentor Works is a business support organization specializing in Canadian government funding. The Ontario-based business helps hundreds of businesses each year to build and execute their funding strategy through a mix of federal and provincial government grants, loans, and tax credits. Mentor Works offers free online resources, funding webinars, and news via their website at www.mentorworks.ca.