1. What type of credit score is needed?
While there is no one magic number that enables businesses to receive the financial resources they need, a higher credit score works to the benefit of the borrower as it reduces the spread on top of the prime rate that would need to be paid to the bank.
2. How important is cash flow?
This depends on the type of loan being obtained. For unsecured (no collateral) loans, the importance of cash flow is magnified while it may not be as big a factor in collateralized loans.
3. What is an SBA loan?
For businesses that have a track record of operations in Ontario and across Canada, the Small Business Administration (SBA) provides funding programs through SBA-approved lenders. While the lender (mainly banks and financial institutions) provides the capital, the SBA guarantees up to 85% of the loan amount, which helps the business owner obtain a lower interest rate.
Depending on each individual business profile, the owner can gain up to $5 MM of SBA-backed financing with loan terms from 5 up to 25 years. However, an emphasis is placed upon credit scores and established histories when evaluating businesses for qualification.
4. Can business loans be used for refinancing other debts?
In a nutshell, yes. However, there are real-world nuances. When obtaining business financing, lenders generally require the borrower to explain the purposes and rationale for where the funds will be deployed. Therefore, it is important to notify the lender at the outset whether these funds would go for marketing, capital expenditures, technology purposes, debt refinancing etc.
5. When should loans NOT be used?
While it is ultimately the owner’s discretion and/or company policy that determines how the capital structure is formed, best practices for debt management include being vigilant with it particularly in cases where the business is in trouble and/or where the company is not a limited liability company.