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Small Business Loans Canada: A Practical Overview

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wealthgram
9 Min Read
Small Business Loans Canada: A Practical Overview

Small business is the backbone of Canada’s economy, accounting for 98% of all enterprises and totaling nearly 1.2 million across the country. Whether you’re launching a tech startup in Vancouver, running a local shop in Calgary, or managing a family business in Halifax, securing the right financing is crucial for growth. However, navigating the process of getting a small business loan in Canada can feel overwhelming due to various options, eligibility criteria, and concerns about approval. Fortunately, there are accessible solutions designed to help entrepreneurs across the country secure the funding they need, including support from alternative lenders like Merchant Growth.

Contents
Advantages of Working with a Private LenderKey Considerations When Working with an Alternative LenderTerm Financing:Business Line of Credit:Preparing to Secure a Small Business Loan in Canada

The first step in financing your small business is deciding between debt and equity options. Debt financing involves borrowing funds from a lender, allowing you to maintain full ownership of your business. While this method preserves your control, it can be costly due to interest payments.

Equity financing, on the other hand, involves raising capital by selling shares to investors, such as venture capitalists. This approach can boost your cash flow quickly but comes at the cost of giving up a portion of ownership and possibly some decision-making power, as investors may impose conditions on how the business operates.

Once you’ve chosen your path, you can then evaluate factors like the type of credit facility, interest rates, and repayment terms—all of which can significantly impact your financial outlook. Taking a strategic approach to financing will help ensure the best fit for your business’s model, needs, and long-term goals.

If you choose traditional financing over equity, there are several types of loans available to small business owners In Canada, each designed to meet different needs. Common options include:

  1. Term Loans: These provide a lump sum of money upfront, which is repaid over a fixed period with interest. Term loans are often used for long-term investments like equipment or expansion.
  2. Lines of Credit: A revolving credit line that businesses can draw from as needed to cover short-term expenses like inventory or cash flow gaps, with interest only charged on the amount used.
  3. Business Credit Cards: A convenient way to manage day-to-day expenses and build credit. Business credit cards often come with perks like cash back or rewards.
  4. Commercial Mortgages: Used to purchase or refinance commercial real estate, these loans are secured by the property itself and are typically long-term with fixed or variable rates.
  5. Equipment Financing: Specifically designed to help businesses purchase machinery or equipment, this type of loan often uses the equipment itself as collateral.
  6. Government-Backed Loans: Programs like the Canada Small Business Financing Program (CSBFP) are offered through banks and backed by the government, making it easier for small businesses to qualify for loans with lower interest rates.

Each of these options has its own eligibility criteria, interest rates, and repayment terms, so it’s important to choose the one that best fits your business needs.

Alternative lending refers to non-traditional forms of financing that provide businesses and individuals with access to capital outside of conventional banks and financial institutions. This includes options like peer-to-peer (P2P) lending, online business loans, crowdfunding, merchant cash advances, and invoice financing. Modern alternative lending began almost two decades ago, in 2005, with the first peer-to-peer online loan. 

In Canada, alternative lending has been available for more than a decade, experiencing significant growth as demand for non-bank solutions has risen. Whether due to the convenience or challenges in obtaining funding from traditional banks, more businesses are turning to alternative lenders. At Merchant Growth, we’re proud to have been part of this movement since 2009.

Advantages of Working with a Private Lender

  1. Completely Online Process: No more taking time away from your business, scheduling appointments, or waiting in line. With alternative lenders, you can apply whenever and wherever suits you—whether from the comfort of your home or on the go via your mobile device.
  2. Faster Funding: Traditional banks can take weeks or even months to approve and disburse funds. In contrast, alternative lenders like Merchant Growth can provide funding in as little as 24 hours, with most businesses completing the entire process within a week.
  3. Broader Approval for Diverse Businesses: Banks often have stricter policies on the types of businesses they fund and may reject applications based on credit scores or industry risks. Private lenders work with a wider variety of industries, including those often overlooked by banks, like cannabis or food service, offering greater flexibility in approval.
  4. Unrestricted Use of Capital: With no formal plan required, you have the freedom to use the funds however you need—whether it’s for inventory, hiring staff, expanding to a new location, or simply managing cash flow.
  5. No Collateral Required: Many private lenders, including Merchant Growth, offer unsecured loans, meaning you don’t need to provide collateral to secure funding.
  6. Newer Businesses Welcome: Unlike banks and government programs that often have stricter time-in-operation requirements, alternative lenders are more flexible. Merchant Growth, for example, requires just six months in business, making it accessible even for startups.

Key Considerations When Working with an Alternative Lender

  1. Interest Rates: Private lenders often work with a wider variety of businesses and offer fast, convenient financing. However, this can mean higher interest rates compared to traditional banks.
  2. Term Length: Private lenders may not always offer the same loan term lengths as banks, which could limit your repayment options depending on the type of financing.
  3. Payment Frequency: Payment schedules may differ from those offered by banks. While some businesses find more frequent payments—like daily or weekly—manageable and beneficial, others may prefer a single, larger monthly payment, which may not always be available.
  4. Online-Only Interactions: For many, the convenience of an entirely online financing process is a major advantage. However, if face-to-face interactions are important to you, this may be a drawback. Although private lenders like Merchant Growth operate fully online or by phone, providing excellent customer service throughout the entire process remains a priority, ensuring that any questions or concerns are addressed promptly.

Term Financing:

Term financing works similarly to a traditional business loan, providing an immediate influx of funds based on anticipated future credit and debit card sales. This type of financing doesn’t require collateral and offers flexible terms tailored to your business’s cash flow needs.

Business Line of Credit:

A business line of credit is a revolving credit option where you only pay interest on the amount you actually use. With a business line of credit from Merchant Growth, you can access necessary funds while avoiding excessive reliance on or maxing out your business credit cards, giving you greater flexibility in managing your finances.

Preparing to Secure a Small Business Loan in Canada

Whether you’re seeking small business funding through traditional or alternative methods, careful preparation is key. To increase your chances of success, gather the following documents in advance:

  • Recent financial statements, including monthly bank statements and major contracts
  • Proof of business ownership
  • Lease or deed for any rented or owned physical spaces
  • Tax documentation
  • Your business plan (tips on how to write a business plan here)

At Merchant Growth, we strive to simplify small business financing. Our minimum eligibility requirements are:

  • Location: Canada
  • Monthly Revenue: $10K
  • Time in Business: 6 months

If you meet these criteria, apply today and our top-rated Customer Support team will assist you throughout the process.

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