Thinking of starting a business? If so, one of the first things you need to do is figure out the amount of capital you’ll need to get your business off the ground and running. Even if your business is established, you may need some extra money to expand.
If you’ve got the assets, great. If not, you’ll likely need to take out some type of business loan to help cover all the costs associated with starting a new business or grow an established business.
Costs Associated With Starting a Business
Before you even open your doors for business, you’ll need to spend some money. Many entrepreneurs often underestimate the potential magnitude of these costs and start their businesses with no financial plan in mind. This can be a recipe for disaster and can cause the business to close up shop just as soon as they opened.
Typical costs associated with small business loans can include any of the following:
- Insurance fees
- License fees
- Permit fees
- Equipment and supplies
- Advertising and marketing
- Borrowing costs
- Payroll for employees
Of course, the list of start-up costs will differ from one type of business to the next. However, these are some of the more generic costs that you can expect when starting a business, which can run into the thousands of dollars.
What’s the difference between a merchant cash advance and a business loan? Find out here.
If you don’t have liquid cash in your savings account to cover all of the above-mentioned expenses, you’ll need to take out a small business loan. These types of loans are similar to other types of loans whereby you will need to apply before getting approved for a certain loan amount. The funds provided by the lender will come with a specific interest rate based on current market conditions and your financial health.
Getting a small business loan can be a challenge, but it doesn’t have to be impossible with appropriate preparation. You will need to be prepared to answer a lot of questions from your lender regarding the type of business you are planning to open, your anticipated revenues, your current financial standing, and any current debts you hold. Your prospective lender will want to be confident that your business will flourish and that you will be capable of repaying the loan without default.
Late on a payment? Here’s how you can rebuild your credit.
Luckily, the Canada Small Business Financing Program (CSBF) makes approval for small business loans easier for both new and established businesses. Under the program, up to $1,000,000 of financing can be extended for any one business, depending on the specifics of the business plan and borrower behind it.
In order to qualify for a business loan under the CSBF, you need to carry on a business for profit (no non-profits) in Canada with gross annual revenues that do not or will not exceed $10 million. Along with non-profit organizations, farms and religious organizations don’t qualify. However, there is a loan guarantee program for those who wish to open and operate a farming business that’s administered and run by Agriculture and Agri-Food Canada.
For some helpful information about farm mortgages, read this.
In order to get approved for a small business loan in the Yukon, Nunavut and the Northwest Territories, you will need to fill out a loan application and supply the lender with a few important details, including the following:
- A solid business plan that explains how the loaned funds will be used for your business;
- Cash flow projections;
- Financial information to help the lender assess risk;
- Your personal finances;
- Your credit report.
If the lender chooses to approve you for a small business loan under the CSBF, your loan will be registered with Industry Canada. However, it should be noted that Industry Canada does not make all credit decisions – individual lenders do that.
When seeking funds for your business, keep in mind that all business loans have their own specific uses and eligibility criteria. As such, it’s important to understand what these are when selecting a particular loan product that will be best suited for your business. Not only that, you should also compare different loan types in terms of the interest rates, conditions, and repayment schedules.
Click here to learn how to compare lenders in Canada.
Types of Business Loans
Whether you want to start a brand new business or grow the one you’ve already established, there are some variations to business loans that you may want to consider:
Short-term loan – If you just need a quick fix of money to cover a pressing expense that your current cash flow situation isn’t adequate enough to cover, you may want to seek out a short-term loan. Most of these types of loans are typically paid back in one lump sum by a certain date in the near future rather than repaid in installments. Whether you need to pay an employee, buy some inventory, or need an extra few bucks to cover your lease, a short-term business loan may help.
Long-term loan – These are the more commonly sought-after loans for businesses that are used for business start-ups or expansions. They typically involve higher loan amounts compared to short-term loans and are paid back in installments until the loan amount is fully repaid. These loan types usually require good credit and a sound business plan in order to be approved for.
Line of credit – Similar to a credit card, a line of credit involves a certain amount of approved funds that can be tapped into as the need arises. You can use some or all of the money allowed, as long as you don’t go over the limit. You are only charged interest on the amount of money withdrawn. Once the money is repaid, you can continue to withdraw from the account as you require the funds.
Look here for some differences between using a line of credit and a credit card for business borrowing.
It can be tough to get approved for a small business loan in the Yukon, Nunavut and the Northwest Territories. Here are some of the challenges that many small business owners face when applying for a business loan:
- Poor credit
- Lack of assets
- High debt load
- Lack of a sound business plan
- Little experience in the business niche chosen
In order to overcome the potential hurdles that many small business owner-hopefuls can often face, it’s important to sit down with an experienced professional and financial advisor in order to improve your position and boost your chances of getting approved for business a loan in the near future.
Final Thoughts
If you’re considering starting a new business or simply want to grow the one you’ve already got, extra money can always come in handy. Many times these funds aren’t readily available in your bank account or credit card, which is why there are business loan options available in the Yukon, Nunavut and the Northwest Territories. If you’re considering taking out a business loan, be sure to speak with a business loan specialist or one of the Loans Canada team members who will be able to guide you on the right path to a successful business venture.
