Business Loans

Business Loans in Canada

Access to financing is one of the most important keys to success for any business. If you are looking to get funding for your business, you probably need the money quickly and on good terms. At Smarter Loans, our panel of over 50 industry experts has reviewed and qualified Canada’s most trusted and reputable business financing providers. Check out the list below or simply apply online here, and let us connect you to the most appropriate business loan provider for your situation.

We can help connect you with the top business financing providers in Canada.

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Top Business Loans Providers in Canada

Company
Amount
Interest Rate
Reviews
Terms
$5,000 - $250,000
Starting at 9.99%
6 - 24 Months
$5,000 - $250,000
Starting at 9%
3 - 18 months
$1,000 - $1,000,000
6% - 25%
3 - 24 Months
$5,000 - $100,000
Starting at 6.87%
3 - 18 Months
$5,000 - $150,000
8% - 18%
6 - 24 Months
$10,000 - $300,000
Starting at 6.99%
4 - 18 Months
$5,000 - $100,000
Starting at 15%
12 - 18 Months
$1,000 - $35,000
5.6% - 25.5%
36 - 60 Months
$5000 - $500,000
12.99% - 39.99%
6 - 18 Months
$5,000 – $500,000
Starting at 5.9%
3 – 60 Months

What is a Business Loan and How Does it Work?

 

A business loan is when you borrow a fixed amount for business needs (as opposed to for personal needs) from a lender and agree to paying it back by instalments over a specified timeline. Business loans usually have specific reasons like starting a business or fulfilling purchase orders.

Even if you have the money, you might choose to take out a business loan. Reason being that you may want to save your cash to run your business instead of using it to buy costly assets. By doing this, it can help you grow your business even faster.

Business loans tend to be risker, so most lenders ask for collateral. If your business is just starting and doesn’t have a lot of assets, you might be required to pledge personal assets like your home as collateral. This provides the lender with the added reassurance there’s a good chance it will be paid back if your business runs into financial trouble.

How a Business Loan Works


Business loans work a lot like personal loans. You’re borrowing money from a lender that you eventually have to repay with interest and fees, as applicable.

There are many lenders to choose from for business loans.

 

Here are some factors to consider when choosing the business loan that’s right for you.

Loan Amount

The loan amount is how much the lender is willing to lend you. This depends on several factors including your income, credit, debts and whether the loan is secured or unsecured against your business.

Terms

A loan’s term is the length of time the loan can be outstanding before it’s needed to be repaid. This isn’t to be confused with repayment terms, which is length of time the loan must be paid back in full.

Interest Rates

The interest rate is how much the loan will cost you. Business loans tend to come with higher interest rates than personal loans, although you may be able to lower the interest rate on a business loan by pledging an asset, such as real estate, as collateral.

Repayment

This is the amount and length of time you’re required to pay back the money you borrow in full. Before taking out a business loan, it’s important to make sure you can afford your monthly payments, since this will largely depend on the success of your business.

Fees

Some loans may come with upfront fees and ongoing fees. You’ll want to find out about any fees and how often the lender requires you to pay them.

Business Loan Example with Numbers


To get a better understanding, let’s run through a business loan example with some numbers.

Let’s say you want to borrow $5,000 at an interest rate (APR) of 15% over 2 years (the loan term/amortization). If the payment frequency is monthly, your business loan payment amount would be $242.43 per month.

How to Qualify for and Obtain a Business Loan


Lenders consider several factors before they’ll approve you for a business loan. It’s helpful to know the qualification criteria before applying to ensure your loan application is a good fit for the lender since each loan application counts towards your credit score, even if it’s declined.

 

Here is a list of factors lenders consider.

  • Business Plan

    Most lenders will want to a detailed business plan outlining your business’s objectives and how you intend to use the funds. You may also be asked to provide trade references to show that you’re creditworthy.

  • Capital Business Assets

    Most lenders want you to secure the business loan with collateral. This is to protect the lender should you have difficulty repaying the loan. Some lenders ask for specified collateral, while others will just accept a general lien on your business.

  • Financial Statements

    Before the lender will extend you credit, they’ll want to know that your business is in good financial health. Financial statements and cash flow projections go a long way in telling lenders if there’s a good chance of you repaying a business loan. A lender will look at the income you have coming in versus your business’s expenses and outstanding debt when determining if you’re a good candidate for a business loan.

  • Credit

    Most lenders will look at both your personal and business credit before approving your application for a business loan. This is a good way to tell if you have a strong history of repaying money that you borrow for personal and business purposes. If you have good credit, it can go a long way in obtaining a business loan with favourable terms.

  • Income

    On the personal side, a lender will also want to know what your personal income is along with if your taxes are filed up to date. This will tell a lender if you’re in good financial health.

  • Collateral

    Lenders will often want evidence of the collateral you’re using to secure the business loan. Collateral such as real estate can be used to secure a business loan. In the case of real estate, the lender will likely request an appraisal to ensure the asset being used as collateral is sufficient in case you run into difficulty repaying the business loan. Lenders tend to look more favourably on businesses where the business owner has made a significant investment of their own funds into the business.

  • Resume

    You may be asked to provide a resume for yourself and anyone else involved in the company. This will show the lender that you have a good history of being successful in your prior business endeavours.

Pros and Cons of Business Loans


Let’s look at the pros and cons of business loans to help you decide whether a business loan is right for you.

Key Benefits


By taking out a business loan, it will help build your company’s financial credibility. By doing that, you may qualify for business loans with more favourable terms, higher credit limits and added credit from your suppliers. It will be a lot easier to get financing in the future when your business has a record of repaying debt.

 

When you take out a business loan, any interest, fees and penalties that you pay related to the business loan are tax deductible expenses. That being said, it’s important to keep your personal and business expenses separate, as it will make it a lot easier when it comes to filing your taxes.

 

Business loans tend to have much higher credit limits than personal loans. Although the amount your business is able to borrow largely depends on your income and the collateral you’re offering to the lender.

Things to Watch Out for


In many cases, your company must be incorporated to qualify for business loans. This can be a costly expense for businesses just starting out. Some lenders though may approve business loans to sole proprietorships, although the terms may not be as favourable since there’s generally less competition among lenders.

 

Business loans typically take longer to approve than personal loans. Depending on the size of your business loan, you could end waiting a few days or a few weeks for your business loan application to be approved.

 

It can be tough for startup businesses to obtain a business loan if the business hasn’t earned much business income. Although if you’re an entrepreneur with a good business plan, you may be able to apply for a startup loan.

About the Author:


Sean Cooper is the bestselling author of the book, “Burn Your Mortgage: The Simple, Powerful Path to Financial Freedom for Canadians”. He bought his first house when he was only 27 in Toronto and paid off his mortgage in just 3 years by age 30. Sean is a personal finance journalist, money coach and speaker, his articles and blogs have been featured in publications such as the Toronto Star, Globe and Mail, Financial Post and MoneySense.

Other Helpful Reading


Types of Business Loans offered:

  • Term Loans
  • Merchant Cash Advance
  • Business Line of Credit
  • Working Capital
  • Unsecured Business Loans
  • Secured Business Loans
  • Bad Credit Business Loans
  • Private Business Loans
  • Restaurant Business Loans
  • Retail Store Business Loans
  • Salon & Spa Business Loans
  • Automotive Business Loans
  • Construction Business Loans
  • Startup Business Loans

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