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Fuel your business growth with the right financing: A legal perspective

Sep 13, 2023

By: Neil Schwartz
Business Lawyer – Mann Lawyers LLP Corporate & Commercial Law

With India having recently touched down on the surface of the moon, an impressive achievement by all accounts, we are reminded of the dozens of failed attempts to do the same over the past 30 years.

I have always been amazed at the degree to which these missions are planned, contingencies mapped out, and single-point failures eliminated — only to result in disappointment despite the high degree of care and attention to the planning.

Fuel your business journey – with cash flow

Cash flow is undoubtedly the rocket fuel of enterprise. Not only is cash necessary to fund day-to-day business operations like rent, payroll and inventory, but it can ignite business growth and expansion.

The fundamental requirement to balance in and out flows was never more apparent than during the height of the Covid pandemic, when businesses, small and large, across an array of industries, were required by law to stop providing services or selling goods but remained pinned to recurring fixed expenses.

For some, relief in the way of grants and subsidies were available, but the timing of the subsidies and the extent to which they actually covered hard costs created intense pressure on operators.

Apart from perhaps the survivalist community, it was the rare gem of an entrepreneur that had planned contingencies for a worldwide pandemic.

Factor in financing for a strong start

Normally, a business will find itself in one of four life cycle stages: startup, growth, maturity and decline.

While cash management is crucial in each stage, arguably, an enterprise is most sensitive to liquidity needs during its launch. This is when expenses can precede revenue generation, and R&D and scale-out efforts can rapidly drain the bank account.

In an ideal world, a business can project its cash requirements in advance and prepare itself to seek financing. This preparation phase is key – to be sustainable a company not only needs a smart business plan but to be perceived as “investable” by the financing community. Refuelling is inevitable.

Discover the right financing option to power your business:

Enterprise financing usually comes in two flavours: debt or equity.

Debt Financing

Debt financing involves leveraging the assets of the business or the strength of existing cash flows to borrow money from a lender, often a financial institution.

Typical deal points include the principal amount of the loan, the term of the debt, the interest rate and the security package (i.e. collateral) granted to the lender.

A borrower also needs to remain in good standing and fiscally healthy throughout the term, and most lenders mandate ongoing reporting and the maintenance of certain financial covenants (i.e. indicators of financial health).

Importantly, debt financing does not involve the transfer of any ownership of the business and, once repaid, falls away like a booster rocket.

Equity Financing

Equity financing, on the other hand, involves the sale of shares in the capital structure of a business. This can take on many forms, but in essence, the enterprise sells an ownership stake in exchange for investment dollars.

The typical negotiables of an equity deal include the type of security or share being sold, the valuation of the business (i.e. price per security), governance and investor rights (including voting rights) and dividend entitlements. Unlike debt financing, capital raised in an equity financing does not need to be repaid but the investor-company relationship can be in perpetuity (so select your investors wisely!).

Ultimately, most companies can only achieve a certain orbit based on founder money. Even if the principals can afford to fund startup and growth, it may be preferable to spread some of the risk to outside stakeholders such as financial institutions and equity investors.

Understanding the company’s cash needs, proactively preparing the company to meet lender or investor needs and negotiating the right deal can be the difference between a thriving business and a crash on impact.

Looking to learn more about financing options for businesses?

Be sure to register for the Financing for Businesses: A Legal Perspective – happening Thursday, September 14th at 11 a.m.  

Register here!


Searching for legal advice and more resources?

We regularly host free in-person, virtual and hybrid events to help strengthen your business. Check out the upcoming events on our events calendar.  

We know navigating business structure, contracts, and insurance can be difficult, especially if you don’t have a business background.  If you’re looking for advice tailored to your business, our experienced partners at Mann Lawyers provide legal support for businesses of any size.


Invest Ottawa
Invest Ottawa, is Ottawa’s leading economic development agency for fostering the advancement of the region's globally competitive knowledge-based institutions and industries. Invest Ottawa delivers its economic development services through a unique partnership with the City of Ottawa, where the City and Invest Ottawa, through its members set the strategy and manage the programs that move Ottawa’s economy forward. Invest Ottawa is a non-profit, partnership organization that operates on an annual budget that comes from a variety of sources including: municipal, federal and provincial government; membership fees; professional development programs; and private sector contributions.

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