We know how it is. You have a brilliant business idea, but no financing to get it off the ground. In these situations, it’s easy to feel overwhelmed, especially if you have no idea where to turn or what financing is available.
Fortunately, microloans in Canada are a valuable financing option for underfunded entrepreneurs and startups. If you get approval for a microloan, you’ll have the funds you need to cover initial expenses and kickstart your business’s growth.
In today’s blog, Smarter Loans has shared what microloans are, the eligibility criteria you need to meet to get started, and the top providers. We hope you’ll walk away knowing your next best step in your financing journey. And remember, you can use our platform to find the best match.
What Are Microloans?
Microloans are similar to traditional loans. However, the main difference is the amount of money an entrepreneur can borrow. Typically, these loans can come with lower interest rates, and the maximum borrowing amount is often $50,000.
You will need to apply for a microloan with a microfinancing institution or program. You’ll be responsible for repaying the microloan through regular payments over an agreed-upon period. Usually, microloans carry shorter repayment terms.
Eligibility Criteria
Every microloan in Canada can have its own special eligibility requirements. However, below are the generable eligibility criteria you’ll need to meet if you want to secure financing and be a step closer to achieving your business dreams:
- You need to be a legal Canadian resident or have citizenship.
- You’ll need to be at least 18 years of age.
- Most entrepreneurs will need to present a well-documented business summary or business plan. These will need to include financial projections.
Additionally, many microloans focus on entrepreneurs with limited credit or no collateral. If you can’t get loans from traditional lending institutions, you’re likely eligible.
Top Providers
Several microloan financing providers are offering small business loans and startup financing, so you’re spoilt for choice. However, with so many options, it can feel overwhelming to pick one that suits you best. So to help you narrow down the list, you’ll find a few of the best microloans for Canadian entrepreneurs below:
Futurpreneur Canada – Futurpreneur Microloan
Most microloans don’t go above $50,000, but the Futerpreneur microloan is an exception. This microloan offers up to $60,000, which includes $40,000 from the BDC. In terms of interest, you could be looking at two different rates.
The first $20,000 of the Futurepreneur portion of the loan carries a CIBC Prime rate plus 3%, up to a maximum of 9%. The second part of the loan carries a BDC floating base rate of plus 1.65% on the remaining $40,000.
This is one of the best funding options for entrepreneurs, as the microloan program is specifically for young entrepreneurs seeking funding and mentorship. It also offers more money than what is typically available, and its up to two years of structured mentorship is incredibly beneficial.
Women’s Enterprise Organizations of Canada (WEOC) – WEOC National Loan Program
If you’re a women-led business and looking into microloan options for start-up financing, you may want to consider the Women’s Enterprise Organizations of Canada’s loan program. This loan program offers up to $50,000, with an interest rate capped at 8.45%.
This program offers its financing to qualifying women through its provincial and regional loan delivery partners. Some of these include PARO Centre for Women’s Enterprise, WeBC, and the Centre for Women in Business.
Additionally, the program offers financing, connections to workshops, national networks dedicated to women’s entrepreneurship, and advisory services.
Access Community Capital Fund – ACCF Microloan
In Toronto and Hamilton, newcomers, low-income earners, and emerging entrepreneurs can look into the ACCF microloan from the Access Community Capital Fund. This microloan offers up to $10,000, and the interest rate varies by borrower, so there is no fixed rate.
With this microloan, you can apply even if you have a less-than-stellar credit score. This is because the program doesn’t rely heavily on credit scores and uses character-based lending.
Additionally, if you get approval for this microloan in Canada, you’ll have access to business training, mentorship, and individualized support.
Rise Asset Development – Rise Microloan
One unique form of entrepreneur funding for microloans is the Rise microloan offered by Rise Asset Development. This microloan has been created for entrepreneurs who have experienced mental health or addiction challenges. The loan amount on offer is up to $25,000, and interest rates are usually low but are set at the time of assessment.
If you have experience with these issues, it might be worth looking into. Additionally, it’s potentially more worthwhile because it offers one-on-one coaching to help you build long-term self-sufficiency. It also includes mentorship and business training.
Thrive Impact Fund – Thrive Microloan
The Thrive Impact Fund is a British Columbia-based social finance lender. They support early-stage entrepreneurs alongside social enterprises and mission-driven small businesses. Their microloans are offered at variable interest rates, but microloans are typically low-interest. You can also borrow up to $25,000.
In addition, these loans are meant for those who have difficulty accessing conventional financing. With this funding, you could build stability, strengthen cash flow, or even launch new products or services. It’s also worth noting that this microloan program prioritizes entrepreneurs who create social or community impact.
Tips for Borrowers
If you’re looking into small business loans, it’s never a bad idea to keep in mind a few tips that can help you secure the right microloan. Below, we share a few of our best tips for borrowers who are currently scouring platforms like ours at Smarter Loans:
Know Exactly What You Need Before You Apply
Before you even think of applying, you should have an idea of what you need from a microloan.
So think long and hard about the purpose of the loan because lenders will want to know why you need funding. However, it’s not enough to simply state that you need it for entrepreneurial purposes. You need to detail how the funding will be used.
This will also help you learn what you can realistically afford, and it strengthens your application by showing you understand your business’s needs.
Show Consistent Financial Habits Before Applying
Another tip you need to keep in mind before applying is to manage how you pay back debts. When you apply, lenders want to see that you have consistent financial habits.
When you can show them this, they are more likely to offer you a microloan, and you could even get a better rate. And even if your income is modest, you can still show that you manage your money appropriately.
So, make sure you limit unnecessary spending, avoid missing payments, and organize your accounts at least 3 months before you apply.
Strengthen Your Cash Flow Before Applying
One of the most important tips we can give to those considering microloans in Canada is to improve cash flow. Even microloans rely on cash flow, especially when there is no collateral at play. This means you need to be able to show consistent income, even if it is modest.
When you can do this, you prove to lenders you can repay them. So, if possible, try to improve your cash flow a few months before you apply, as it can significantly improve your business’s chances of approval.
Borrow Only What You Can Comfortably Repay
A microloan is meant to help you grow as an entrepreneur, not strain your finances. That’s why it’s best to borrow only what you can afford to repay comfortably. This means you need to consider how your monthly payments fall into your slowest and leanest months.
This will give you a good indication of whether it’s affordable for you. In the long run, this kind of forethought will help keep your business stable. It will also position you for larger financial access in the future.
Key Takeaways
Evidently, there are quite a few microloans in Canada that entrepreneurs can apply for when the time is right. We hope you have a better understanding of the top providers, tips you should follow, and eligibility criteria. If you’re ready to apply for a microloan or another form of financing, you can use the Smarter Loans platform to find the best funding solution for your needs.
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