If you are looking for business loans in Canada, you’ve come to the right place! Opening a business can be stressful and confusing, especially when you don’t have the cash flow upfront to do so. Thankfully, loans for business ventures exist in every province and territory in Canada.
Business Loans: Frequently Asked Questions
What is a business loan?
A business loan is a type of loan that business owners can take out to put towards financing their business.
Where can I get a business loan?
The most common place to get a loan for a business is the bank. There are plenty of reputable banks in Canada that offer business loans. That being said, eligibility requirements for a business loan from a bank can be strict. If you have a poor credit score, for example, you likely won’t be approved. So, many business owners turn to private lenders for business loan needs instead.
Should I apply for a small business loan through the bank?
Banks often request a lot of information about you, your financial history, and your business before they approve you for a loan for business. Eligibility requirements are also strict. But, if you do think you can be approved for a business loan from a bank, should you apply for one?
Interest rates and repayment terms tend to be more stringent from banks rather than alternative lenders. Alternative lenders know you won’t be approved for a loan, so they can charge a higher interest rate. So, if you need a small business loan and you can get one from the bank, it’s a good idea.
Should I apply for a loan through an online lender?
Many people are hesitant to go through online lenders in Canada. This is because compared to banks, they are fairly new at offering business financing. If you are already considering an online lender, it is likely because you can’t get approval from a bank. Don’t worry, though! Online lenders are safe if you go with a reliable one. With so many available as well, it is easier to shop around to find the best loans for your businesses.
Where can I find an online lender?
If you do want to go with an online lender, you may be struggling with where to start looking for one. There are many great loan search engines available such as RATESDOTCA and Loans Canada. These websites let you put in all of your business financing needs, and they will show you all the lenders available to you. In your search, these websites will show you all the information about the loans these lenders offer as well.
This is the quickest way to see all of your business financing options at one time. Both of these websites offer their service for free, so why not check out what your options are with no obligation?
Is a business loan different than a small business loan?
Business loans are often simply referred to as a small business loan because typically, only a small business would need a loan. Bigger, established businesses tend to have either the cash flow or the necessary financial support already.
How is a business loan different than a personal loan?
A personal loan can be used for anything. Many people use them for things like paying off debt, tuition, house renovations, and more. Most lenders will allow you to use it to cover your businesses’ expenses. In this scenario, you will be held liable for the loan rather than your business.
On the other hand, a business loan typically can’t be used for personal expenses. In both cases, it is better to keep your business finances separate from your personal ones.
What factors will be considered when I apply for a small business loan?
The main thing that will be considered when you apply for a small business loan is your credit score and financial history. Getting approved from traditional lenders with a poor credit score will be next to impossible. Many online lenders specialize in getting business loans for people with bad credit.
The next factor that will be considered is your actual business. Traditional lenders often won’t give you a business loan if you haven’t been in business for at least a few years. This doesn’t help many business owners as they typically need financing before they can open. Thus, private lenders are a better option here, as well.
What can I use my business loan for?
Generally, you can use the financing you receive for anything to do with your business. This could be purchasing things (equipment or inventory) you need, paying for marketing, renovations, expansions, and more.
Do small business loans have interest rates?
If you have ever taken out any type of loan, you have likely been charged an interest rate. Business loans are no different. You will likely either be charged a fixed interest rate or a variable interest rate.
If your interest rates are fixed, whatever percentage you agreed to is what you will pay for the term. Variable interest rates, however, change based on what the market interest rates are. This means throughout your term, your interest rate could constantly be changing.
What is a term loan?
A term loan is the length of your loan. What term loan you get is often up to you and your business needs. Having a business plan to know whether you will need a loan for the short term or long term is a good place to start. Small business loans can range from a few months to years, so thinking about how long you will need one for beforehand is important.
Should I get credit cards or a loan?
Many people in Canada rely on credit cards for their cash flow, so business owners may consider using theirs for their financial needs. It may seem like a good idea, but it can ruin your credit score. Your business may require more financing than you thought, and paying off the credit cards will get harder and harder.
Similarly, credit cards tend to have higher interest rates than a small business loan would. In the end, if your business needs financing, it’s better to go with a loan.
What is working capital?
Working capital is the amount of money and assets small businesses have after their liabilities are accounted for. Small businesses’ liabilities tend to consist of things like payroll, taxes, and debt. Any money the small business owes, essentially. Once that is subtracted from businesses’ assets, that is the working capital.
What is the difference between an unsecured and a secured loan?
An unsecured loan tends to be the more popular option. This is because business owners don’t need to put down any collateral to get an unsecured loan. To get an unsecured loan, however, your credit history needs to be healthy.
A secured loan, on the other hand, requires some form of collateral to obtain it. Collateral will typically consist of any assets that your business has, such as inventory or equipment. Collateral could also be any assets you have personally as well. If you don’t pay your loan back on time, the lender can then sell your assets instead. If you think you won’t be able to pay the loan back in the future, it’s better not to take out a secured loan.
How often do I have to make payments towards my business loan?
Your businesses’ repayment terms will vary depending on the lender you go with. Typically, payments are to be made monthly. Some lenders may let you pay for the year upfront if you prefer. Some lenders may even offer weekly payments. Ultimately, you can negotiate your repayment terms with the lender directly.
How much of a loan can I get for my business?
The amount of money you can get for your business loan solely depends on the lender you go with. Online lenders typically offer amounts as low as $500 to as high as $500,000. Banks, on the other hand, prefer to lend larger amounts to bigger businesses, sometimes upwards of $1,000,000. The more they lend, the more money they can make in interest.
What fees will I have to pay?
Many people think they simply have to pay back the money they borrowed with interest. Unfortunately, there are many other fees involved. Here are some of the typical fees you may see.
- Origination fee: charged for processing your application. It is typically 2% to 7%.
- Withdrawal fee: typically $1 to $3 every time you withdraw money.
- Late payment fee: typically 3% to 5% if you make your monthly/weekly/yearly payments late.
- Wire transfer fee: if you receive your money through wire transfer, you may have to pay anywhere from $10 to $80.
- Prepayment penalty: depending on the lender, you may be charged extra if you pay off your debt earlier than you said you would.
- Insufficient funds fee: typically 3% to 5% if you have autopay set up, and you don’t have enough money in the account for the payment.
- Canada Small Business Financing Program (CSBFP) registration fee: all lenders have to pay this 2% registration fee.
When is a bad time to take out a business loan?
If you are just starting out your business, you don’t know how successful it will be. So, it is often advised you don’t take out any money when your business has not yet been established. Similarly, if your business is already in debt, putting it in more debt is not advised.
What kind of small business loan can I get in Canada?
There are many different types of small business loans available in Canada. Here are the main ones:
- Line of credit.
- Business credit card.
- Installment loan.
- Invoice factoring.
- Merchant cash advance.
- Commercial mortgage.
Where can I get business loans, Alberta?
Business loans, Edmonton and the rest of Alberta are readily available. Loan search engines such as RATESDOTCA are a great place to start looking for the perfect small business loan.
Where can I get business loans, Ontario?
The bigger the city, the more small businesses there are. Thus, there are plenty of people looking for a small business loan in Toronto and the Greater Toronto Area. Again, a loan search engine is a great place to start as you can see all the small business loans available to you in one place. RATESDOTCA also offers business loans, Toronto.
Where can I get business loans, BC?
Another major city in Canada is Vancouver. Thus, there are many searches for business loans, Vancouver. Unfortunately, RATESDOTCA does not serve those in British Columbia. Thankfully, there are other great small business loan search engines such as Loans Canada that British Columbians can use to find business financing.
The Bottom Line
Business owners in Canada have options for borrowing money. Depending on your province or territory, either RATESDOTCA or Loans Canada is a great place to start.