Small Business Loans

Small Business Loans in Canada.

Access to financing is extremely important for Canadian small businesses of all sizes. Restaurants, retail shops and many other industries rely on working capital to pay for inventory, staff, advertising, equipment and general expenses. As such, getting small business finacning at the right time and at the right terms can be the difference between success and a missed opportunity. Getting business financing in Canada is simple thanks to companies that can give you a business loan entirely online. The application process is typically quick and simple, and if you qualify, you could receive funding for you business in just a few days. Below you will find a table of Canada’s most reputable providers of small business financing. Take a look at each one and consider what they are offering. Once you’ve had a chance to compare your Canada business loan options, click “Apply Now” next to one of the lenders and you will be taken to the application form on their website. You can also pre-apply here at Smarter Loans and we will find a suitable lender for you based on the information you provide.

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

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Top Small 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
8.99% - 18.99%
3 - 24 Months
$5,000 - $100,000
Starting at 29%
4 - 6 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

How Do Small Business Loans Work?

 

Funding through online private lenders is becoming more and more popular and can give business owners access to faster capital.

Business loans allow companies to gain the financial capital required to do business, either as a startup, building a company from the ground up or as an established business partaking in a new venture. Business loans are borrowed debt to be repaid to the lender according to the terms and conditions set out in the business loan agreement and is subject to interest.

Interest rates for business loans from private lenders may still be considered high, but with the increase in lending partners, a more competitive market is emerging to provide business owners with more options to choose from.

According to Statistics Canada, access to business loans and other financing options have become easier over the past years due to ease in overall business credit conditions. This is caused by price conditions, higher demand for credit and competition among lenders. The supply of financing to Canadian businesses increased with 5.2% over a year period between 2017 and 2018 and is set to increase further.

Reasons for Getting a Business Loan


Credit Disbursements in Canada by Industry


Business funding is directly associated with growth. Capital is crucial for any business and most stakeholders are not in the position to use personal funds when starting a company. A business loan gives the initial capital needed to get a business running and profitable so that in turn the business loan pays for itself.

 

More than just starting a company, business loans can be used for multiple purposes:

  1. Business expansion
  2. Buying and keeping inventory
  3. Cash flow for day-to-day operations
  4. Marketing
  5. Acquiring equipment
  6. Mergers and acquisitions

Types of Business Loans to Consider


Companies are all different and thus there exists a need for different business loan types to suit the different needs companies face.

What to Consider when Applying for a Business Loan


Evaluate the Business

Lenders determine whether or not they will loan money to a company based on their risk profiles. A company’s debt-to-equity ratio, or leverage, is the relationship between how much equity a company can provide against the amount of money to be borrowed. This is a key metric for how lenders will view the financial standing of a business as it determines the risk brought in as a customer.

How Much Money to Borrow

How much a company can borrow and how much they want to borrow may not be the same. Larger loans will be harder to find and interest may sky-rocket if the risk becomes high to the lender. Make sure to do a thorough analysis of the business and goals to determine the minimum amount of money required to increase the chances of getting the business loan approved and to minimize risk to the company.

Loan Repayment Terms

The agreement on how the business loan is paid back will differ by lender and loan circumstance. It is important to consider the length of time it will take to repay a business loan and the schedule for repayment. Determine whether or not the loan can be repaid sooner or if it is bound to a fixed term. Ensure that the company is in a position to repay the business loan according to the terms and do not get caught unaware of any fine print penalties.

Application and Administration Fees

In some cases, lenders will add additional fees to a business loan, such as fees to apply or administration fees which can include the cost to do credit checks and getting collateral appraised. Compare the market and determine which loan suits the situation best by calculating all the costs upfront.

Interest Rate Offered by the Lender

Different lenders have different interest rates which can be affected by a company’s risk profile. The higher the risk to fund a business, the higher the interest. Higher rates over shorter periods or for smaller loan amounts can be viable, however when the principal amount becomes considerably high and repayment terms are long then the interest can cost thousands of dollars. Smarter.loans’ partners have interest rates starting as low as 5.68% and can go up higher as risk increases.

When Will the Money Be Needed?

The time it will take for a loan to get approved and money to be disbursed will differ between lenders and different loans. For loans under $500,00, it can take anything from 24 hours to 30 days for a loan to get approved when using suppliers on Smarter.loans.

Eligibility


Different leaders have different criteria for evaluating businesses before providing loans. Be sure to research lenders and only apply when fulfilling all requirements.

 

Considerations which may affect eligibility:

Business is registered in Canada
Time in business
Monthly and annual revenue
Credit rating and history

Applying for a Business Loan


Requirements for applying for a business loan will look different for each loan provider, this should be evaluated before applying for a business loan to ensure the company will qualify. The following key aspects will be looked at when being considered for a business loan:

  1. What will the money be used for?
  2. What is the goal of the business?
  3. What is the cash flow of the business and what do future estimations look like?
  4. What is the company’s credit profile?
  5. What collateral can the company provide?
  6. How long has the company been in business for?
  7. Is the company Canadian?
  8. What equity can the company provide?

Applicants should have a detailed business plan ready, along with the required financial statements and supporting documents when applying.

Do the applicable research to find the loan and lender which will best suit your company and requirements and reap the rewards.

Pre-Apply for a Small Business Loan Here

Frequently Asked Questions about Small Business Loans

1. Who is eligible for a small business loan?

Small business loans are relatively easy to obtain compared to financing for corporates. To apply and receive funding, business owners need simply to complete an application (online or at specialist lenders) and provide access to their business’s registration details and financial statements, as well as credit profile. While size is not a direct consideration, lenders will want to look at a consistent history of revenue generation and reasonable cost control.

 

2. Is a personal credit score and business credit profile the same thing?

No, the personal credit score in Canadian provinces and territories is a number between 300 and 900. While there is no equivalent score for a business in Canada, different credit bureaus have adapted a scoring system to rank creditworthiness by evaluating certain behaviours of businesses.

 

3. Is a business plan necessary?

This depends on the type of loan being obtained. While most small business lending companies will want to see how the small business will deploy the funds, a well-formulated business plan may not be an application support requirement for all. In the case that it is necessary though, it is important to answer the following questions:

a) What the small business loan will be used for (additional funding “cushions”, expansion, equipment/technology purchases, working capital, funds for supplier/employee payments, capital expenditures, cash flow purposes etc.)

b) Expected business and economic conditions over the next 2-5 years

c) How they will impact profitability and financial strength

 

4. How to select the best lender?

When looking at different lenders for small business financing, it is important to consider a broad list of items before committing to one lending option. While it is tempting to take the offer with the best rate, a lender should be viewed through the lens of a business partner. In the same way that a great business partner can improve the company, a great lender can provide your business with the resources to take it to the next level. As such, the following should be considered, weighed, and decided upon:

a) Their policy frameworks (application processes, information requirements, and ALL fees)

b) Ancillary services they offer (e.g. transaction banking solutions)

c) Term of the loan (measured in years or months)

d) Variable or fixed rates (possibly adjusted to real rates to account for inflation)

e) Funding amount offered and how it matches with the capital that is needed.

 

5. Can a business based out of a home qualify for such a loan?

Absolutely. If the business is registered and meets the other qualifications of the lender, the business can be located out of a residential living arrangement.

Small Business Loans By The Numbers


While there are many blogs and calculators available online that help search for lenders and calculate monthly loan payments, a good starting point would be to see whether it is worth obtaining a loan in the first place or not. Owners have the option of either selling equity or raising debt via small business financing when they need fresh capital in the company. However, depending on the dynamics of the company, debt may or may not be the most profitable option.

In this scenario (Scenario 1), we are assuming that a company with 100 currently outstanding shares is growing at a steady to fast rate and can afford to service lending requirements i.e. debt repayments adequately. The assumptions made here are that the company can either choose to raise money via $5000 of debt at 5% APR compounding monthly for 5 years or raise the same amount of equity by selling 25 more shares (125 shares outstanding). As can be seen, the EPS under the debt option is greater than the equity option.

In Scenario 2 where the company has declining growth, it would fail to even make the debt repayments by Year 3, forcing it to default. By these examples, it should thus be abundantly clear that while credit can be advantageous, it must be utilized and managed appropriately to realize its true benefits.

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