Where do Canadian startups and small business find their financing?

This is not a rhetorical question. Startups and small business will drive us out of this recession with the new jobs they will create. Their new jobs replace the hundreds of thousands eliminated at the large global brands whose solutions fell behind. And without access to financing, these new jobs with small business and startups will not be created. So, no this is not a rhetorical question.

And, its answer addresses all of our lives.

So. Where do startups and small business find their financing?

Credit Cards?

Most of the startups dont have a business plan and think that they might only need ’some’ cash to start off and don’t see any problem in using their credit cards. But the problem is the startup money is not usually enough to keep the business running and they keep on using their credit cards.

Startups that lean too much on credit cards are more likely to fail, according to a new report (PDF) from the Kauffman Foundation. The study found that every $1,000 of credit card debt increases the probability that a new firm will close by 2.2%.

Credit cards have increasingly replaced traditional loans, and this study suggests that taking on credit card debt is one factor that contributes to business failure.

The report notes that “with the recent contraction of credit markets, many new businesses will face difficulties in accessing traditional forms of credit, which likely will create greater demand for credit cards.” - BusinessWeek, Credit Card Debt Hurts Startups.

When there is an option to go for a Government Guaranteed Loan for Startups (which BPF is an expert on), why do you have to max up your credit cards? . This not only eats up a large share of your profits by paying high interests but also reduces your chance of getting a loan by affecting your credit score.