CIBC Investor’s Edge is a great online investing platform for novice and experienced traders. Learn more about this great online trading solution!
Menu
Small businesses must access capital to thrive, especially during their start-up years. They may need to expand current activities or fund new plans. Small business loans in Canada are pivotal in helping small businesses remain competitive and healthy. These loans provide entrepreneurs with several benefits, including help in refinancing debt, improving cash flow, purchasing equipment, increasing inventories, and more.
According to Statistics Canada, small businesses make up almost 98% of companies in Canada and employ roughly 70% of the Canadian workforce. These statistics show the importance of small business loans in supporting Canadian economic growth.
Despite these businesses’ contributions to the country, banks are often reluctant to loan money to small businesses because of their perceived high failure rate. Therefore, finding valuable small business loans in Canada is complicated. This post discusses where you can find small business loans in Canada.
The Canadian government provides some programs to help small businesses obtain the financing to start and maintain their business.
The Canadian federal government offers the Canada Small Business Financing Loan (CSBFL) to small businesses, similar to the Small Business Administration in the United States. This program reduces the risk for lenders by guaranteeing up to 85% of the loan. This shared risk makes it easier for small businesses to access financing from financial institutions.
Although small businesses can take out loans up to $1 million through the CSBFL, these loans can only be used for specific purposes, including:
Generally, borrowers cannot spend more than $350,000 to purchase leasehold improvements, improve a leased property, or purchase or improve new or used equipment. Also, borrowers cannot use their loans for goodwill, working capital, franchise fees, inventory, or R&D purposes.
The Business Development Bank of Canada (BDC) is owned and managed by the Government of Canada. The BDC provides businesses with several funding options for different stages of growth. For example, the BDC offers loans for companies operating for less than 12 months, between 12 and 24 months, and longer than 24 months.
In some cases, the BDC loans are deposited within 24-48 hours and can be offered for up to $100,000. Depending on how you will use the loan, the BDC provides several funding options. Examples include the following:
The BDC provides specific loans for tech companies and support for Black, Indigenous, and Minority entrepreneurs. It also provides advisory services, such as coaching, financial management, business strategy, operational efficiency, e-commerce, and tech advice.
EDC assists businesses of all sizes to source financing options by partnering with the private sector to mitigate risk.
EDC is a Canadian export credit agency owned by the Government of Canada, which provides financial products to support Canadian exports and investments. These include insurance and guarantees, bonding products, securing financing, and increasing working capital.
EDC assists businesses of all sizes to source financing options by partnering with the private sector to mitigate risk. It offers services to facilitate international growth, secure financing, and make investments.
The list of financial solution that EDC offers include the following:
Alternative lenders usually base approvals on more than just your credit score, making it easier for start-ups and small businesses to get financing. They also offer applications with fewer administrative requirements, delivered in the simplest ways possible. As a result, alternative lending is ideal for business owners who do not have time to prepare an extensive application or need funding immediately.
Online lenders offer an intelligent alternative to traditional bank loans. Technology is used throughout the process, and a different model is utilized to assess creditworthiness. Various loan choices and separate lenders can be compared with their associated fees and rates.
P2P lending is a way to finance that lets anyone be a lender to someone needing a loan. They usually connect via an online platform, which is beneficial because it sidesteps the conventional banking system and simplifies the funding of small businesses.
According to Investopedia, credit unions are financial cooperatives that provide traditional banking services to their members. They sometimes offer better rates on loans than conventional banks. They work as local, community-based financial institutions that support small- and medium-sized businesses. Unlike for-profit banks, credit unions are not-for-profit and distribute their profits among their members.
In Canada, financing from traditional banks is more complex than other lenders.
Five major banks in Canada — RBC, Scotiabank, CIBC, TD, and BMO — offer financing programs for small businesses. In addition, some banks provide CSBFL funding and other financing options, including lines of credit, term loans, asset-based financing, operating credit, equipment financing, commercial mortgages, and more.
Traditional banks’ small business loans in Canada differ in amounts, terms, and fee structures. Loan amounts typically start at $10,000. These loans are offered on short-term, mid-term, and long-term agreements. Although some terms may run up to thirty years, they are mostly provided with seven- to ten-year repayment terms.
In Canada, financing from traditional banks is more complex than other lenders. Most small businesses lack the credit history and collateral usually needed for such loans, particularly those in the beginning stages. Thus, alternative lenders might be a better option for small businesses.
Not all banks require the same information to qualify for small business loans in Canada. But the basic information required includes the following:
To increase the chances of being approved for a traditional bank loan, small business owners should create a business plan, have a solid personal credit score, prepare business documentation, use assets as collateral, and reduce debts.
In addition to the abovementioned approaches to getting small business loans in Canada, other options are also available.
Crowdfunding is a way for small businesses and start-ups to raise money by asking many people for small amounts, usually in exchange for a stake in the company. Thus, lots of people invest a bit in return for ownership.
The most common types of crowdfunding plans are:
In Canada, NPOs can seek funding from governmental departments, local groups, foundations, and businesses. Such grants are generally categorized by the source, such as:
NPOs can fund their next initiative using these grants. But they should keep in mind that this type of funding is restricted to certain activities. Therefore, ensuring their application is specific and focused on a particular task is critical to obtaining financing in this way.
Small businesses can utilize invoice financing to get paid faster. This program allows them to receive up to 95% of their invoices immediately after they are issued. It is a type of loan that utilizes unpaid invoices as collateral.
Invoice financing is suitable for businesses that bill many thousands each month with longer invoice payment terms. This financing is also great for those without assets to use as loan security.
If you need a small business loan in Canada, there are various options for getting your financing. The first option is taking advantage of traditional bank loans or government-backed small business loans in Canada, including the CSBFL program, BDC loans, and EDC financing.
Since not all small businesses and start-ups have the credit required to get bank and government-backed loans, alternative lenders such as online lenders, P2P lenders, and credit unions also provide great options. If none of these options work, small businesses can get financing through other methods, such as crowdfunding, grants for NPOs, and invoice financing.
Regardless of where you choose to finance your small business in Canada, it would help to compare different loan options to find out which is best for your business. In addition, seeking professional advice and assistance when applying for small business loans in Canada can help ensure you are on the right track to fund your business.
Creditpicks maintains dealer status with the top loan aggregator in Canada. Creditpicks’ preferred partner funds business and personal loans such as auto loans, debt consolidation, and other financing and refinancing products.
Please complete the form below if you’re interested in speaking with a Loan Specialist. A Creditpicks representative will connect you with our partner to determine and potentially fund your needs. Remember, there is a loan available for nearly everyone. It is just a matter of finding the right product for you.
CIBC Investor’s Edge is a great online investing platform for novice and experienced traders. Learn more about this great online trading solution!
Oh Canada! Want to immigrate to Canada? Already here? This post covers obtaining entry, settling, and setting up basic newcomer banking services.
Crypto is likely permanent. Even with Bitcoin (BTC), Ethereum (ETH) and other cryptos at lower market caps than before, you may have considered the advantages
© 2023 Creditpicks