Launching your own business can be an exciting, liberating experience, but it can also be frustrating if you’re unprepared financially or if you can’t seem to get the funding you need to get your idea off the ground. One of the most popular ways to receive startup funding is through small business loans in Canada, but there are still plenty of misconceptions surrounding these loans and how they work—from the types of businesses that qualify to how loans are issued and even why certain businesses are eligible for more funding than others.
What is a small business loan?
A small business loan is a type of financing that is provided to small businesses by either a bank, an alternative lender, or the government. Small business loans can be used for a variety of purposes, such as expanding your business, purchasing inventory, or hiring new employees. On the other hand, the borrower agrees to certain terms of interest and finances before they borrow, in return.
What is a small business loan used for?
A small business loan is a loan that is specifically intended for small businesses. These loans can be used for a variety of purposes, such as start-up costs, working capital, or expansion. In order to qualify for a Small Business Loans Canada by Icapital, you will typically need to have good credit and a strong business plan. There are a number of different lenders who offer small business loans in Canada, so it is important to shop around and compare rates before deciding on a loan.
Different types of small business loans
There are many different types of small business loans available in Canada. The most common classification is secured loans and unsecured loan:
Secured Loan: These loans require collateral, like a home or car, as a guarantee that the money will be repaid. If the borrower fails to repay the loan, then the lender can seize the collateral. These loans tend to have higher interest rates because lenders need some sort of protection against non-payment.
Unsecured Loan: These loans do not require any collateral at all, so there is nothing for the lender to take if you fail to pay back your loan. Generally, these types of loans come with lower interest rates than secured loans because there’s no risk for the lender if you default on your payment. However, this comes with an increased risk for the borrower – if you can’t afford to make payments on your loan, it’s unlikely you’ll be able to afford to repay it!
What are the costs of a small business loan?
There are a few different types of small business loans available in Canada, each with their own interest rates and terms. The most common type of small business loan is the government-backed loan, which is offered through the Canadian Small Business Financing Program. These loans have low interest rates and flexible repayment terms, making them a good option for small businesses.
However, there are also private lenders who offer small business loans, which may have higher interest rates but can be easier to qualify for. Private lenders typically provide more funding options than the federal government, as well as being more willing to give out larger loans than banks.
Finally, some companies offer lines of credit as GreenDayOnline an alternative financing option. Lines of credit allow small businesses to take out money at any time and pay it back when they choose – instead of having to pay it back all at once.
Qualifying for a small business loan
In order to qualify for a small business loan in Canada, you will need to have a strong credit score and a solid business plan. The loan amount you can qualify for will depend on your credit score and the strength of your business plan. You will also need to provide collateral for the loan, which can be in the form of property or equipment. In addition to that you will need to provide the financial institution with the following things:
- Business Plan
- Bank Statements
- Balance Sheets
- Income Statements
- Tax Returns
- Personal Financial Documents
- Information about assets purchased
Where can I get a small business loan?
Traditional Banks: Banks are a common source of capital for small businesses.
Microloans: Small business loans for those who may be having difficulty getting financing from a bank or credit union, normally under $50,000. The proceeds of many microloans can be used only for the intended purpose. Microloans are usually offered by nonprofit or government organizations.
Community loan funds: Various non-profit organizations that offer loans to local initiatives and to foster entrepreneurship in the community.
Canadian Small Business Financing Program: Small businesses and start-ups with less than $10 million in gross revenue can apply for a loan program in collaboration with financial institutions. For more information please click here
Credit Unions: Cooperatives that provide traditional banking services to their members. They are not for profit and can sometimes offer better rates on loans than a traditional bank.
The Business Development Bank of Canada: A federal development bank whose mandate is to create and develop Canadian businesses through financing, growth and transition capital, venture capital, and advisory services. It concentrates on small and medium-sized businesses. Apply online for up to $100,000. More details are available at this link.
Though online lenders offer many similarities to the traditional lending model, their processes and technologies offer a slightly different approach to borrowing, lending, and evaluating creditworthiness.