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Business Loans

Are you starting a business? Do you already operate one, but are considering expanding it? Or are you looking to simply add more resources to your established business?

No matter what scenario you happen to be in, starting, running, and growing a business takes money. And for most entrepreneurs, the amount of money needed is not always readily available. 

That’s precisely why business loans exist. The adage is largely true: “it takes money to make money.” Without adequate funds, it can be difficult to succeed. But just because you don’t have access to immediate funds right now doesn’t mean your business has to suffer.

With a business loan, you gain access to the capital required to either start, operate, or grow your business. These types of loans are specifically dedicated to supplying business owners with money for business purposes. Like all other loan types, business loans will mean you’ll be taking on some debt, which will eventually need to be repaid, plus interest. But the help that these loans can provide you with can be indispensable and invaluable.

Whatever phase of your entrepreneurial journey that you may be in, a business loan can be exactly what your business needs to truly thrive. 

Choosing The Right Business Loan

There are variations of business loans that are available, including the following:

Small Business Loans 

For entrepreneurs who own and run small or medium-sized businesses, a small business loan can help increase cash flow and take your business to the next level. Lenders that offer small business funding often specialize in specific industries and focus on helping small business owners thrive. 

Start-up Business Loans

For the entrepreneur with an idea. A start-up business loan can provide the funding needed to take your idea and turn it into a successful business. 

Private Business Loans

If your current credit profile isn’t sufficient enough to get approved by a conventional lender, you may seek out a business loan from a private lender who will take other factors into consideration before you are approved, such as your assets and most recent payment history.

Online Business Loans 

Online business loans can be applied for and approved entirely online without the need to visit a lender in person. They are often a good option for business owners who are having trouble getting approved for funding from their bank

Make sure you avoid these common business loan application mistakes. 

Preparing To Apply For a Business Loan

The type of financing that you choose will depend on the exact phase you’re in. Before you decide on the perfect business loan for you, there are a number of considerations to make. Ask yourself the following questions before you make your final decision:

  • How much money do you need?
  • What do you need the money for?
  • What stage of business are you at?

Comparing different lenders is also important. You should also ask yourself a few questions about the lenders themselves before you decide who you will ultimately work with:

  • How much experience does the lender have in your industry?
  • What do the online reviews say about the lender?
  • What is the lender’s customer service like?
  • Are you comfortable working with the lender?

Different loan products should also be compared to each other. In particular, the following elements should be assessed:

  • Amount available from each lender
  • Interest rate
  • Term
  • Payments

Once you’ve asked all the right questions and gathered all the pertinent information you need, you will be in a better position to make the right decision about which type of business loan is best for you.

Common Business Loan Fees

In exchange for the money you are given to start or grow your business, you will be charged certain fees. In addition to charging interest on loan amounts – which is how lenders make money on business loans – there are feeds charged that help cover the cost of these financing products for lenders. The fees can vary quite a bit and typically include any of the following:

  • Application fees
  • Origination fees
  • Late-payment fees
  • Non-sufficient funds (NSF) fees
  • Prepayment penalties

It’s important to understand the true cost of borrowing so that you know exactly what your financing product is going to cost you in the long run.

When is it the Right Time To Apply For a Business Loan?

Considering the fact that you will be assuming a certain amount of debt when you take out a business loan, you want to make sure you are doing it for the right reasons. You’ll be responsible for making regular payments, and failure to do so can have a negative impact on your credit and financial profile. 

That said, there are some sound reasons why you may want to take out a business loan, including the following:

You want to build business credit – As a business owner, building a strong credit score is important (learn more about business credit scores). Without it, it will be difficult to get approved for any loans in the future. By making timely payments on a business loan, you can effectively build up your credit.

You need to expand – If business is going great and you’re finding that your current situation is not enough to accommodate further growth, it might be time to expand your current space or move to a new one.  

You need to hire new staff – Along with a growth in business often comes the need to add more staff to your roster. As with anything else in your business, this requires money, which you can get from a business loan. 

You need new equipment – Whether you need to accommodate growth in business, are just starting out, or simply need to replace obsolete equipment that you already have, a business loan can help you finance such expensive purchases. 

Your marketing campaign needs a boost – Whether you’re just opening your business’s doors for the first time or simply want to stay top-of-mind among your clients, a sound marketing campaign is essential. But again, this can be expensive, and without adequate funds, your advertising efforts could fizzle out. With funds from a business loan, you can fuel your marketing and see your business take off. 

You’re in a slow season – As a business owner, you know that positive cash flow is necessary to stay afloat. But sometimes, it’s possible to find yourself in the red from time to time, especially during slower times of the year. With a business loan, you can gain access to funds to help cover your daily expenses until things start to pick up again. 

How Business Credit Can Affect Business Funding Approval

Much like consumer credit can affect a person’s ability to get approved for a mortgage, personal loan, or car loan, so can your business credit impact your ability to secure a business loan. Your company’s track record will play a role in your business’ s credit which will ultimately impact your ability to secure business financing.

Establishing and building business credit takes time and effort, but there are steps you can take to make it happen. Most importantly, make sure to pay all of your bills on time. To help you stay on top of this effort, keep track of all your business’s income and credit payments. An even better tactic would be to pay your bills early. Timely bill payment is essential to building a good business credit score. 

What Do Lenders Look At When Approving a Business Loan?

In order to qualify for a loan, you will need to meet certain criteria that lenders will assess, which typically include the following:

Business plan – Your lender will want to know what you need the money for, how much you will need to cover this need, a description of your business concept, your company profile, the market that you’re competing in, and your market forecast.

Statement of business assets – Most lenders will want to see that you can put forth some collateral to secure the loaned funds. That said, many lenders don’t require it to approve a business loan, particularly online lenders. 

Financial statements – These will give lenders a clear picture of the state of your business and whether or not you’d be a good candidate for a business loan. 

Cash flow forecast – Your lender will want to know how much cash flow you have available, how well your business is running, and what types of outstanding debt you may still have.

Business credit score – Similar to how consumers have their credit scores assessed when they apply for a consumer loan, so must business owners have their business credit looked at when applying for a business loan. The purpose of such an assessment is to allow your lender to evaluate your creditworthiness. 

Income and tax returns – This information will tell lenders what financial state your business is in.

Everything you need to know about filing a business tax return, click here.

Finding The Right Business Loan

No matter what stage your business may be in – whether you’re just starting out or are looking to take things to the next level – the funds supplied via a business loan can really help. Be sure to carefully assess your needs and your current situation before you apply for a loan. To make things easier for you, Loans Canada can help you determine your needs and connect you to a lender who can provide you with the exact business loan product best suited for you. 

Please take a look at the wide variety of industries where we can help:

Note:

All consultations and conversations with Loans Canada and its partners are confidential and risk-free. Speak with a trusted specialist today and see how we can help you achieve your financial goals faster.

Loans Canada and its partners will never ask you for an upfront deposit, upfront fees or upfront insurance payments on a loan. To protect yourself, read more on this topic by visiting our page on loan scams.