Small Business Loans in Canada

Posted on July 16, 2021

There are more than 1.1 million small businesses in Canada alone. After Covid-19 hit Canada, several of these businesses found themselves having to close their doors due to government mandates, meaning that they lost the revenue needed to continue thriving as a business.

The way that small business loans work is first, you will need to provide the lender with documentation so that they're able to verify the information you've given to them. One type of documentation you might be asked for is your business loan.

This is so that the lender will get a better idea of why you need the Canada business loan, to begin with. Other types of information that could persuade a lender to approve you for a loan is a sheet of the company assets as well as other financial documentation.

Once the information is provided, the lender will go about reviewing each piece of information in-depth. The lender will check the credit history of you as the owner of the small business.

This helps them justify giving you the money with the assurance that you can pay it back. The age of your business will also be taken into consideration before you're granted a loan.

The typical small loans vary based on the business and the type of loan you're seeking. There are times when you can assume that a small business loan is the same as a startup loan, but there will be times when a small business loan isn't defined as a startup loan.

What Types of Businesses Qualify for A Small Business Loan?

The majority of businesses ranging from small to medium in size qualify for a small business loan. The only small businesses that don't meet the requirements for a small business loan are businesses that include:

  • Adult entertainment
  • Gambling businesses
  • Cannabis businesses

To qualify, your business must have earned less than $10 million in overall company revenue. If it's higher than that, you're not eligible to receive a small business loan.

Larger companies that are in Canada were allowed to continue conducting business during the Covid-19 pandemic. Therefore they aren't don't require the same assistance that small businesses need.

What Are The Benefits of A Small Business Loan?

While there is a lot to know about obtaining a small business loan, there are even more advantages. We understand that you might be on the fence about applying for a small business loan.

But, hopefully, the advantages listed below will give you an idea of what you stand to gain from getting a loan for your business.

More Control

The last thing any business owner wants when it comes to their business is to lose control. A small business loan gives you the power to get your business up and running again.

You're taking back the control you lost when the government mandated that small businesses close until the pandemic was under control.

Lower Cost in the Long Run

One thing that you must look at when applying for a small business loan is the cost of the loan. If your business was strong before the pandemic occurred, you might be able to get a lower interest rate.

However, the lender will have a limit for how low they're willing to place your rate.

Easier to Obtain

We mentioned above that there are some documents a lender will ask for before they approve you for a small business loan. Once the lender notes that your business and personal credit history and score are in good standing, they should move forward with approving the loan.

This makes it one of the easiest loans that you can get when you have a business.

Tax Perks

As a business, one of the perks of making specific decisions are the tax deductions you'll claim when it's time for your business taxes to get done. If you've received a small business loan, you can claim the interest you pay on your loan as a deductible.

Build Your Business Credit

If your business credit isn't as high as you wish for it to be, a small business loan can improve this. Ensure that you make your payments on time and not late.

One late payment can leave you paying late fees and reflect poorly on your business's credit report.

Different Types of Small Business Loans

There are several types of small business loans. The key to getting one is knowing which loan will work best for your company's needs.

If you're not sure about, we've created brief descriptions for each below.

Line of Credit 

When you hear the word line of credit, you should think of it the same way you would think of a line of credit taken out on a credit card. A line of credit loan gives you the ability to borrow money from a lender when you need it.

After you've borrowed the money, you'll only make payments based on the amount that was given to you and nothing more. We recommend this choice if you need money for something temporary.

Installment Loan

An installment loan is when you agree to make payments on a schedule after receiving a loan from the lender. Before obtaining the loan, you will sit down with a lender to agree on the amount of time you'll get to pay the loan back.

Merchant Cash Advance

As a business, you will take in several types of payments from customers over time, including credit and debit card payments. A merchant cash advance loan is when you agree to give the lender a specific amount of your credit and debit card sales as payment for the cash advance you got.

The more sales you take in this way, the quicker you're going to pay the cash advance off.

Invoice Factoring

This is when you sell a portion, or all of your company's invoices to an outside company. This, in turn, helps to improve your companies cash flow as well as ensures income stability.

Once you've outsourced to a third party, the company will pay you the amount on the invoices and seek payment from the customers in return for what they've given you.

Equipment Lease

Instead of purchasing the equipment needed for your company, you may decide to rent it using an equipment lease. You'll lease the equipment for a specific period, and it will cost you less in the long run than if you outright bought all the equipment needed to run your company successfully.

Commercial Mortgage

It would help if you had an office building to qualify for this loan. The lender will lend you the amount that your company is valued at, and all you've got to do is make your regular mortgage payments.

Business Credit Card

Business credit cards are used to make purchases for your business. It gives you the access you need to a revolving line of credit that can be used for anything as long as you ensure you make the payments on the card. 

The items that you use your business credit card for will be reported to the business credit bureau.

Personal Loan and Credit Cards

This is credit that you can use to make larger purchases that may be necessary for your company. If you're looking to get a personal loan, one of the advantages to having one is that the interest rate you'll get tends to be on the lower end.

What Are The Interest Rates on A Small Business Loan?

The average interest rate that small business loans have in Canada is 5.7%. The bank with the lowest interest rate tends to continue fluctuating because Covid forced banks to adjust their interest rates for their clientele.

Banks are making several changes to the interest rates they offer to their clients.

There are types of small business loans that offer you a fixed rate. If you're looking for one with a fixed rate, review the information about the different types of loans above.

How Do The Repayment Plans Work?

A repayment plan works in a way that you will make a payment monthly for a specific time period until the amount that you've borrowed has been paid back. This also includes the interest that your loan has amassed.

Before you leave the lender's office, ensure that you understand completely the terms of your repayment plan and the consequences of not making your payments.

How Do I Apply for A Small Business Loan?

If you don't have money, there's no need to worry because you can still get a small business loan. All you've got to do is research the no money down loans in your area and begin the application process.

If you're applying for a business loan for the first time, you need to research what affects your creditworthiness. From there, decide on the type of loan you need and the lender that you want to ask for the loan from. 

Next, think about the requirements you've got to meet to receive a loan. These requirements include:

  • Operating a business for profit
  • Have assets
  • Be defined as a small business

Documents you'll need include:

  • Personal tax documentation
  • Business credit report
  • Business income statements

Once you've got these things, you can then move forward with finding the right lender and obtaining your business loan.

Small Business Loans 101

There are several components to small business loans and several types to choose from. If your business was affected by the pandemic, you should look into small business loans in Canada to get back up and running.

Are you in need of a personal loan or insurance? If so, take time to complete an application and contact Insurdinary.

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