Alternative Lending

All you need to know about small business funding in Canada.

If you are a small or medium business owner who has struggled with obtaining a loan in Canada in the past, or even if you want to avoid the headache and frustration associated with conventional lenders, there are several sources of alternative lending from which you can choose. Each has its own unique set of benefits and drawbacks, so be sure to consider them all carefully.

Peer-to-Peer Lending

(P2P) lending is gaining popularity around the world, primarily because it puts the power back in the hands of the people rather than in the hands of big banks. The term used to describe it most often is “crowdfunding” since the money you inevitably borrow comes from a pool of resources made possible by members of the P2P site. The most popular sites for P2P lending offer up excellent loan amounts and repayment terms of between 36 and 60 months, and for the most part, they have fixed interest rates that are based on your credit history.

Merchant Cash Advances

A merchant cash advance is another option if many of your customers pay you with credit or debit cards. When approved for a merchant cash advance, you can receive funding in your business bank account in as little as one to five business days, and in many cases, your credit is not even a consideration. These lenders look at things like the time your business has been open as well as your monthly revenue in order to determine whether you qualify. While some merchant cash advances come with high APRs, others have one-time fees built right into the total amount of the loan. Instead of monthly payments over a fixed term, you will repay this type of loan with a percentage of your daily sales. It’s one of the most flexible ways for businesses to get the money they need.

Invoice Financing

If you run a business that depends on invoicing to generate revenue, then you might benefit from a relatively new type of loan on the market – invoice financing. Simply put, you can apply for an advance on a percentage of your accounts receivable, which is typically anything between 75% and 85%. Then lender pays you the rest of the money minus any fees whenever you collect the payments for the invoices. There is usually no credit check or collateral required, but the fees are higher than conventional business loans.

Equipment Loans

Equipment loans are fairly self-explanatory, and while they are not right for all businesses, they can certainly come in handy in a variety of situations. Even startups can apply for equipment loans since they are almost always completely secured. To apply, you first need to present your business plan and the equipment you intend to purchase to the lender. Then, the lender will either approve or deny the loan. If approved, the equipment becomes the collateral for the loan, which helps to reduce interest rates and make repayment more affordable. While a bank loan can be an excellent financing option, it usually relies heavily on personal credit history, which can make it difficult to obtain the loan. Buss you can see, there are many ways for small and medium businesses to obtain funding for the things they need without going to the big-name banks. Be sure to examine your options closely so that you can understand which one is best for your company at any given time.