How to Get Small Business Loans in Canada

Loans play a critical role in the functioning of small businesses in Canada. Small businesses request financing to cater for business activities such as upgrading equipment, inventory, tax payments, staffing, renovations, supplier payments, cash flow, or marketing. Small business owners in Canada can borrow from the government, online lenders, traditional banks, credit unions, p2p lenders, crypto lenders, etc.

Types of Small Business Loans

There are different types of loans that a small business can borrow depending on their business needs. Small business loans can be classified in several categories. Some include:

  • Secured Business Loans. Secured loans are secured against collateral such as stocks, bonds, or personal property. They have a lower interest rate, long repayment periods, and are mostly suitable for larger loan sizes.
  • Unsecured Business Loans. Unsecured business loans do not require any collateral or asset. Critical qualifying factors for unsecured loans are your credit score (they require a higher credit score) and credit history. Unsecured loans are mostly used for education purposes, personal loans, and credit card purchases.
  • Long Term Business Loans.  Long term loans can last several years and are ideal for larger loan sizes.
  • Short Term Business Loans. A short-term loan is usually repaid within a short period of time (the entire amount is paid back in full on a specific date). Short-term loans are less flexible and with higher interest rates.
  • Business Loans with Bad Credit. Business loans with bad credit in Canada are loans for business owners and businesses with low credit scores.
  • Cryptocurrency backed loans. Crypto backed loans are new types of loans that businesses can apply for. Crypto loans are similar to any other secured loans because borrowers use their cryptocurrency as collateral for the loan.

Factors to Consider when Choosing a Small Business Loan in Canada

When choosing a small business loan, it is important to consider some factors so you can apply for a business loan that suits your business needs.

  • Interest Rates. Being a small business, it is best to choose a loan with the lowest possible to keep your borrowing costs to a minimum.
  • Lender Reputation. Before you choose your lender, conduct thorough research to make sure that the lender you are dealing with is reputable. You can even check for customer reviews to see what customers are saying about their services.
  • Eligibility. Different lenders are likely to have different eligibility criteria. Go through their requirements to ensure you qualify before applying for any loan.
  • Loan Size. It is important to consider your loan size before you choose a lender. Different lenders are likely to have different requirements and you might prefer one lender to another.
  • Loan Term. Loan terms can be short or long. The size of the loan may also dictate the loan term you consider. If you want to pay off your loan over a short term, take a short-term loan.
  • Repayment Schedule. Choose a loan with a repayment schedule that you find comfortable. Repayment schedules can be weekly, biweekly, or monthly.
  • Fees. It is best to find out the fees that a lender is charging before applying for a loan. Find out about their application fee if any, late payments, fees for early repayments, and other fees.

Peer to peer lending in Canada: You can also apply for peer to peer loans in Canada. goPeer is one of the best peer to peer lender in Canada. It is Canada’s first regulated consumer peer-to-peer lending platform dedicated to helping everyday Canadians to lend and borrow from each other. goPeer is able to offer better personal loan rates to borrowers than traditional. Moreover, it allows everyday Canadian to participate in goPeer p2p investment.

Documents Needed when Applying for a Small Business Loan in Canada

Different lenders may require you to provide different documents when applying for a small business loan in Canada. However, basic documents include a business plan, bank statements, tax returns, income statement, and other personal financial documents.

Where to Obtain Small Business Loans in Canada

Small business in Canada can obtain funding from the Government, online lenders, traditional banks, community loan funds, crypto backed loans, peer-to-peer lending, or credit unions.

Best Banks to Get Small Business Loan

Major banks are a common source of capital for businesses but it might be difficult for small businesses in Canada to qualify for the loans they provide. However, it is not entirely impossible.

  • TD Bank Small Business Loan. Toronto-Dominion Bank offers small business loans through the Canada Small Business Financing Program. TD Bank offers businesses the funds they need to purchase land, buildings, and equipment. It also offers asset-based financing, equipment leasing, operating credit, etc.
  • RBC Small Business Loans. Royal Bank of Canada is the largest bank in Canada offering small businesses with fixed and variable rate loans, commercial mortgages, and business credit cards.
  • Bank of Montreal Small Business Loans. The Bank of Montreal offers credit cards, business lines of credit, commercial mortgages, and installment loans. You can apply up to $1 million through the Canada Small Business Financing Program.
  • Scotiabank Small Business Loans. Scotiabank offers small business term loans with both fixed and floating rates. It also offers business lines of credit, credit cards, and business bank accounts. Your business can get a loan up to $1 million with a repayment period of up to 10 years.

Credit Unions Business Loans in Canada

Credit Unions are not for profit and they mostly offer better rates compared to traditional banks. Examples include:

  • Vancity Small Business Loans. Vancity offers a variety of funding options including micro-loans, operating loans, business term loans, lines of credit, etc. The amount you qualify for a loan depends on your business activities and how long you have been in business.
  • Meridian Credit Union Small Business Loans. Meridian provides small business loans through the Canada Small Business Financing program. It offers business loans, credit cards, and lines of credit. You can borrow up to $1 million to help cover commercial property, equipment, and for leasehold improvements.

Community Loan Funds in Canada

Sometimes, small businesses may not be eligible for funding by banks or other lending institutions. In this case, Community Investment Funds are a good alternative. Small businesses can get a loan from $2, 000 up to $150, 000 depending on the type of loan.

Canadian Government Funding through the Canadian Small Business Funding Program

The Canadian Small Business Funding Program is a small business funding option through which the Government of Canada offers funding to small businesses in collaboration with financial institutions.  The Government of Canada helps small businesses to get loans from financial institutions (such as credit unions and banks) by sharing the risk with lenders. Under this program, small businesses with gross annual revenues of $10 million or less can receive up to $1 million in loan support. However, businesses in the farming sector are not eligible for these loans.

You can use the loan to purchase or improve land or buildings to be used for commercial purposes, purchase of new or existing leasehold improvements, or purchase or improvement of new or used equipment. However, you cannot use more than $35, 000 for the mentioned activities. Also, you cannot use Government of Canada small business loans as working capital, for goodwill, paying franchise fees, increasing inventory, or executing research and development. Interest rates charged under this program are determined by your financing institution.

Online Lenders in Canada

Online lenders are considered a good alternative to traditional banks since they do not have strict eligibility criteria. Examples of the best online lenders for small business loans include:

Futrpreneur provides loans to black entrepreneurs in Canada and black owned startups in Canada, which include two years of mentorship, access to resources and networking opportunities with fellow entrepreneurs across Canada.

  • Sharpshooter Funding. Sharpshooter Funding has no set application requirements and their interest rates are fee-based, starting at 9%. Sharpshooter offers working capital loans, commercial mortgages, merchant cash advances, unsecured funding, and merchant card processing. You can borrow from $1, 000 – $300, 000.
  • Lending Loop. Lending Loop is a peer-to-peer lending platform where you can have one or more lenders finance your business. To qualify for a loan, your business must be at least 1 year old, have an annual revenue of at least $100, 000, and have a personal credit score of least 600. Loans range from $1, 000 to $500, 000.
  • OnDeck. OnDeck offers flex loans, term loans, and lines of credit. To qualify for a loan, your business must be at least 6 months old, have an annual revenue of at least $100, 000, and have a personal credit score of at least 600. OnDeck offers loans starting from $5, 000 up to $$300, 000.
  • Thinking Capital. Thinking Capital funds small to medium-sized businesses. To qualify for a loan, your business must be at least 6 months old and generate an average of at least $7, 000 in monthly card sales. Thinking Capital offers up to $300, 000.

Peer to Peer Business Loans in Canada

Lending Loop is Canada’s first regulated p2p lending platform that connects businesses seeking capital with p2p lenders in Canada through its online platform. You can borrow amounts from $1,000 to $500,000 to help build your business, with rates starting at 4.96%. Lending Loop is one of the companies that facilitate business loans with bad credit in Canada.

Crypto Backed Loans in Canada

Crypto lending in Canada is a new options for businesses looking for loans. To participate in crypto backed loans, you first need to own crypto such as Bitcoin. With crypto loan in Canada, you don’t have to worry about your credit score because the loan will be secured with your crypto assets. Some of the firms that engage in crypto lending in Canada for small businesses include:

  • Salt Lending. Unlike a traditional loan that takes your credit score into account, Salt Lending offers asset-backed loan for businesses in Canada in which your crypto assets act as collateral for your line of credit. Once you pay back your loan, Salt returns your crypto assets to you. SALT’s interest rate is a fixed 9.99% on all loans, regardless of the LTV.
  • Ledn. Ledn is a Toronto-based company that offers Bitcoin backed loans in Canada at 8.9% annual interest (10.9% APR). Generally, Ledn loans are issued at around 50% of the value of the Bitcoin collateral used to secure the loan. The company also offers crypto mortgages in Canada.
  • HoneyBadger. HoneyBadger is a Canadian company that owns a network of crypto ATM machines in Canada and also allows you to borrow Canadian dollars for your business by using your Bitcoin as collateral. This means you don’t have to sell your cryptocurrency to obtain a business loan. The company is FINTRAC-regulated.
  • CoinLoan. CoinLoan offers crypto loans backed by stablecoins or fiat. For instance, you can borrow Bitcoin against altcoins such as USDT. CoinLoan is one of few companies that offer reversed loans: crypto-to-fiat, crypto to crypto and fiat to crypto.

Loans from Friends and Family

At times, small business owners may not be eligible or any type of loan or they may have reasons for not applying with financial institutions. In this case, family and friends can be a perfect alternative. Family and friends may have flexible requirements for giving you a loan.

Final Thoughts on Small Business Loans in Canada

A small business loan is essential for the efficient functioning and growth of your business. However, before you take a loan, assess whether you really need the funds or not because some business expenses are worth going into debt for while others are not. Also make sure you are capable of paying the loan back.

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