Small businesses are essential to the growth and success of the Canadian economy. According to Statistics Canada, small businesses make up approximately 98% of all businesses in Canada and employ about 70% of the Canadian workforce. Despite the importance of small businesses, most banks are reluctant to loan money to start-ups and small businesses as they typically have a high failure rate. In fact, according to Statistics Canada, slightly more than 50% of small businesses fail during the first 10 years of operating. Due to this risk, they pose, finding funding can be difficult. Fortunately, alternative lenders exist and have been bridging the gap between small businesses and affordable business loans.
Working With An Alternative Lender
There are many benefits to working with an alternative lender. Unlike a bank, alternative lenders don’t judge you based on business credit score alone but a multitude of factors such as income, assets, liabilities, debt, and more. The whole process of obtaining a loan from an alternative lender is generally simpler and much faster than from a bank. Moreover, they don’t pose any restrictions on how you can use your loan.
The main downside to alternative lenders is that their interest rates and fees are typically much higher than what you could secure at a bank. As such, it is imperative that you understand the terms and conditions before you work with an alternative lender,
Best Reasons To Get A Small Business Loan
A business loan is basically an installment loan that is repaid over a period of time with interest. The difference between a business loan and a regular personal installment loan is that you must own a business to be eligible.
There are many reasons a business may require a small business loan, however, it is important to assess whether or not you really need the funds. While some business expenses are worth going into debt for, others are not. Here are a few examples of when a small business loan makes sense.
- Refinancing Debt – If you currently have high-interest debt, finding a loan with lower interest is a smart move.
- Improve Cash Flow – Every business experiences cash flow problems, especially seasonal businesses. Taking out a loan to cover such shortages and continue operations is worth it.
- Expand Your Business – If you’re looking to expand your business, more often than not, you’ll require some extra funding to help you make that a reality.
- Equipment – Equipment can not only help you operate your business, but it can help you increase productivity and thus your revenue. The problem is, equipment is often costly. Rather than buying the equipment outright and hurting cash flow, a small business loan or an equipment loan can help you finance the equipment in affordable payments.
Best Small Business Loans
- Sharpshooter Funding
- Journey Capital
- Lending Loop
- Thinking Capital
- Merchant Growth
Sharpshooter Funding
For those business owners who are looking for quick and simple funding for their small business, Sharpshooter Funding is one of the best in the business. With no set requirements, start-ups and young companies have a good chance of getting the funding they need. Interest rates are fee-based and start at 9%. SharpShooter Funding’s small team means you’ll get the personalized service you want and deserve. You’ll speak with real people who will help you through the process every step of the way and who will be available to help you down the line if you’re looking for additional funding.
Whether you need capital to buy equipment or expand your business, sharpshooter has a range of small business financing options including:
- Working capital loans
- Merchant cash advances
- Commercial mortgages
- Start-up funding
- Unsecured funding
- Merchant card processing
Minimum Requirement
- The overall health of your business.
Journey Capital
Journey Capital is a fintech company that aims to provide entrepreneurs with the credit products and tools needed to succeed. Whether you need to buy equipment, inventory or pay for general operating expenses, Journey Financial has a solution for you. Journey Capital currently offers three types of credit products: fixed-term loans, flex loans, and lines of credit. Depending on your needs, one option may be a better fit than the other. With the standard business term loan, you can get up to 300k for up to 24 months.
Minimum Requirements
- Your business must be at least 6 months old
- Your business must have annual revenue of at least $100,000
- You must be a Canadian based business and have a bank account with a Canadian financial institution
Lending Loop
Lending Loop is a peer-to-peer lending platform. Businesses in need of capital can apply and have one or more lenders finance their loans. Lenders on the platform choose who they want to fund through Lending Loops grading system which determines how fast you’ll be funded and at which interest rate. Whether you’re a start-up or a mature business, you can find the capital you need through Lending Loop.
Minimum Requirements
- Your business must be at least 1 year old
- You need a personal credit score of at least 600
- Your business must have annual revenue of at least $100,000
Thinking Capital
Thinking Capital has been providing small to medium-sized businesses with business loans and merchant cash advances since 2006. Since their inception, they’ve helped over 15,000 businesses in Canada get the funding they need when they need it. Through technology and numerous partnerships, Thinking Capital has grown and is now able to offer businesses the financing options that best meet their needs.
Minimum Requirements
- Your business must be at least 6 months old
- Your business must generate, on average, at least $7,000 in monthly card sales
Merchant Growth
Merchant Growth is a 10-year-old Canadian company that has been making small business financing fast and accessible. Through innovation and transparency, they hope to provide small businesses with custom financing options that help them grow. Along with traditional business loans, Merchant Growth also offers a flex business loan option which adjusts repayments according to your business flow. While slow days reduce your repayment amount, busy days will increase it. This option makes Merchant Growth great for seasonal businesses that need that repayment flexibility.
Minimum Requirements
- Your business must be at least 6 months old
- Your business generates at least $5,000 in monthly card sales
- Your business has a physical location with at least 6 months left on your lease.
Best Small Business Loans Overview
| Amount | APR | Term (months) | Best For | |
| Sharpshooter Funding | 1k – 300k | Fee-Based: Starting at 9% | 12 – 60 | Start-up businesses |
| Journey Capital | 5k -300k | 16% – 25% | 4 – 24 | Small businesses |
| Lending Loop | 1k – 500k | +5.9% | 3 – 60 | Small businesses |
| Thinking Capital | Up to 300k | 8% – 22% | 6 – 12 | Established businesses |
| Merchant Growth | 5k – 500k | – | 6 – 18 | Seasonal businesses |
Banks And Credit Unions
Along with alternative lenders, banks and credit unions provide Canadian small businesses with the funding they need to grow. While it can be more difficult to attain funds through these sources, for certain small businesses, a loan from a bank or credit union is a great option.
In Canada, there are 5 major banks:
- TD – Toronto-Dominion Bank
- RBC – Royal Bank of Canada
- Scotiabank
- BMO – Bank of Montreal
- CIBC – Canadian Imperial Bank of Commerce
TD Bank
TD is one of Canada’s most well-known banks. It offers small business loans through the Canada Small Business Financing program. This is a business financing option funded through TD and the Government of Canada. It provides small Canadian businesses the funds they need to purchase equipment, land and buildings. TD also offers a number of other business financing options such as asset-based financing, operating credit, equipment financing and leasing and more.
RBC
With over 1,300 branches, 4,200 ATMs and over $1.43 trillion dollars in total assets, RBC is the largest bank in Canada. They offer small businesses with fixed and variable rate loans as well as other business financing options such as commercial mortgages and business credit cards. Their small business term loans start at $5,000 for variable interest rates and $10,000 for a fixed rate. These loans are typically secured and have a maximum repayment period of 7 years.
Scotiabank
Scotiabank, also known as the Bank of Nova Scotia is the third largest bank in Canada with $1.09 trillion in total assets. They offer small businesses term loans with both fixed and floating rates. Businesses can gain access to loans up to $1,000,000 with a repayment period of up to 10 years. They also offer businesses a range of other credit products such as business lines of credit, credit cards, loan protection, and business bank accounts.
BMO
BMO is Canada’s fourth-largest bank and provides its services to over 12 million customers across the globe. They have a great variety of business credit products. They offer businesses lines of credit, credit cards, installment loans, commercial mortgages, and more. You can apply for up to $250,000 through their basic installment loan or up to $1 million through the government-guaranteed loan program, the Canada Small Business Financing Program.
CIBC
CIBC is the fifth-largest bank in Canada with total assets being $640 billion. Like the other major banks, they offer their own small business loans as well as loans through the government’s Canada Small Business Financing program. You can request loans starting at $10,000 up to $1,000,000 to help you finance your business equipment, property, or any other long term business goal. Along with business loans, CIBC also offers business lines of credit, business credit cards and more.
Meridian
Meridian is the second-largest credit union in Canada. They have over 370,000 members and provide businesses with business loans, lines of credit and credit cards. Meridian provides it’s business loans through the Canada Small Business Financing program. You can apply for up to $1 million to help you cover commercial property, equipment and new or existing leasehold improvements.
Vancity
Vancity is Canada’s largest credit union with over 543,000 members and 28.2 billion in assets. They offer businesses a variety of credit options such as business term loans, lines of credit, micro-loans, operating loans and more. Their microloans for small businesses go up to $75,000 with repayment periods up to 84 months. The amount you qualify for depending on a number of factors such as what your business does, what year of operation it’s and more.
| Amount | APR | Term (months) | Best For | |
| TD Bank | Up to 1 Million | – | Up to 120 | Small businesses |
| RBC | Starting at 5k | – | Up to 84 | Small businesses |
| Scotiabank | Up to 1 Million | – | 36 – 120 | Small businesses |
| BMO | Up to 1 Million | – | Up to 120 | Small businesses |
| CIBC | Starting from 10k | – | Up to 120 | Small businesses |
| Meridian Credit Union | Up to 1 Million | – | Up to 120 | Small businesses |
| Vancity | Up to $75k | – | Up to 84 | Start-up businesses |
Business Loans Costs To Consider
When you take out a business loan there are a few factors you should consider before signing the agreement. Understanding how much your loan will cost you can help you save money and see if it is affordable.
- Interest – Interest makes up most of the expense when it comes to loans, so it makes sense that you should always compare all the available options you have before settling with any one lender. Especially since alternative lenders often charge much higher interest rates than banks, you’ll want to find the lowest rate available to keep costs to a minimum.
- Fees – Sometimes lenders who charge a lower interest rate will make up the difference in fees charged. Beware of origination fees, administration fees, and other fees such as prepayment fees, late payment fees, and NSF fees.
- Term – While a long term loan can break up your costs into nice affordable payments, you end up paying a lot more in interest as a result.
- Asset – Do you need to put an asset up for collateral? If so, be very careful with the amount you borrow, as any missed payments can lead to your lender seizing your asset for repayment.
Ways To Ensure Your Approval
Requirements for a business loan are a lot more complex than a traditional personal loan, which makes qualifying for them a lot harder. Thankfully, there are steps you can take to help ensure your approval.
- Having a business plan. Having a written report of how you plan to use the money and how you expect to grow your business can help convince your lender that you are a serious and worthy candidate for the loan.
- Use your personal credit score. If you have a strong personal credit score, it can show lenders that you are capable of managing debt and making payments on time.
- Prepare your documentation. Most lenders will want to know about your financial history. Having your bank statements and cash flow statements ready can help speed up the process. Moreover, creating financial projections can also sway your lender to approve you.
- Assets you own. If you’re willing to put one or more of your business assets up for collateral, it can greatly improve your chances of being approved for a loan.
- Reduce your debt. If you have a lot of debt, paying off some before applying can also help ensure your approval.
Frequently Asked Questions
What interest rate will I be charged?
Will a small business loan affect my credit?
What are the minimum requirements to get a small business loan?
Bottom Line
Whether you need to purchase new equipment, pay for an expense or improve cash-flow, a small business loan is usually a good solution. However, always ensure you really need the funds and are capable of paying it back, as defaulting on your payments can hurt your financial health. You can use a loan comparison website like Loans Canada to help evaluate your options by comparing rates, fees, and reviews of multiple lenders.
