Many small businesses begin their search for capital at local bank branches, where they already hold business chequing and savings accounts. If they lack sufficient personal credit scores or assets as collateral for qualifying criteria, however, this might prove futile.
While traditional banks remain familiar territory, securing business loans for small businesses can broaden beyond local branches, opening doors tо innovative financing solutions tailored tо different financial landscapes.
Luckily, they can turn to other forms of financing options if necessary. Continue reading to gain an insight into the different kinds of business loans in Canada.
Term Loans
Small business owners looking for financing often turn first to their local bank for assistance, which offers various loan products tailored specifically for businesses.
Banks offer term loans for various uses, such as buying equipment or real estate. Most types of term loans require some form of collateral in case a borrower defaults – typically equipment or real property as security.
Banks take into consideration more than collateral when considering loan applications from potential borrowers, such as their credit score and time in business when determining if debt payments can be serviced successfully. Interest rates on such loans may either be fixed or variable and annual percentage rates are often used for comparison purposes.
Lines of Credit
Business owners looking for a line of credit but unable to fulfill the stringent requirements of traditional bank loans may benefit from exploring alternative lending services like OnDeck as they provide up to $10,000 within 24 hours after approval – paying only for what you use!
Just like banks, alternative lenders typically review your personal and business finances to assess creditworthiness. They consider factors like debt-to-income ratio, profit and loss statements and cash flow projections when helping determine eligibility for small business lines of credit. Furthermore, alternative lenders may take into account factors like size and location as well as length of operation in assessing whether you can be approved.
Cash Flow-Based Loans
Small businesses occasionally need access to additional capital for expansion purposes. At such times, capital injection can help your company move forward quickly.
lenders look at both your personal credit score and financial projections of your company to assess eligibility for loans, such as your debt-to-income ratio, profit and loss statements, tax returns and future cash flow projections.
Banks and online financial institutions also offer these loans; however, most come from alternative lenders who specialize in quickly reviewing business projections and approving credits with lower risk than typical lending scenarios. The Government of Canada also has a small business financing program which helps some businesses receive funding more easily by sharing risk with lenders and making it easier to secure funding.
Equipment Loans
When business owners need equipment financing, they often turn to their local bank for help. Banks have an edge when it comes to knowing about borrowers and can facilitate the loan application process more quickly than alternative sources.
As part of their risk mitigation measures, lenders require collateral such as equipment or real estate in case of default. Furthermore, lenders want to see strong evidence of profitability and business plans showing how new equipment will bring additional revenues.
An excellent credit score is crucial, as lenders almost always check a borrower’s personal credit before offering loans to them. Borrowers with good scores will often secure more favorable terms and rates from lenders.
Alternative Lenders
Many small businesses rely on banks as a traditional source of funding, including their local branch. Canada’s five largest banks (TD, RBC, Scotiabank, BMO and CIBC) all offer business loan programs as well as other lending solutions like lines of credit, asset-based financing options, operating credits and equipment financing solutions to aid business expansion.
Bank loans may be an ideal financing solution for small businesses with stable revenue and good credit scores; however, their approval criteria can often be restrictive and restrictive in terms of approval criteria. Alternative lenders provide more flexible funding solutions for young and start-up businesses looking for financing.
Thinking Capital and IOU Financial provide online search platforms that help small businesses quickly locate lenders offering loan amounts, terms, fees that meet their financing needs. Sometimes applications can even be processed within 24 hours with funds arriving at a business bank account directly after processing is completed.
