Business Loan Types

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

Whether your business is a fresh startup or you simply want to grow, access to capital is imperative to your success. There are several ways to go about getting the funds you need, including getting a small business loan. Although there are more than a dozen specific types of business loans in Canada, they all typically fall under four distinct categories.

#1 – Lines of Credit

A line of credit is like a credit card, meaning that it is essentially a pool of money. You can borrow what you need when you need it and make payments only on what you use. Although this is a great way for businesses to access the capital they need on demand, lines of credit often have high compounded interest rates. If you are considering a credit card or another line of credit, consider your situation. These options are best when you need to make up for temporary shortfalls in your income rather than huge purchases like expansions or improvements. Banks and other major lenders offer lines of credit to business owners.

#2 – Short-Term Loans

A short term loan is a sum of money that you borrow from a bank or another type of lender. However, rather than making fixed monthly payments, you simply repay the entire amount, in full, on a specific date. As their name would suggest, most business owners use these to settle their short-term needs; they are perfect for things like building inventory, raising funds for accounts payable, or for finishing up some sort of project that will give you a quick return. Most short-term loans are valued at less than $100,000. Banks, credit unions, and other licensed lenders provide them, and they are especially helpful for those who run seasonal businesses.

#3 – Long-Term Loans

Long-term loans are the most popular types of business loans out there – and for good reason. Commercial lenders tend to offer long-term loans for things like working capital, refinancing, acquisitions, and even business expansion. You’ll need good credit and a well-established business to get a long-term loan with an outstanding interest rate, but if you fall short, make sure that you come up with a solid business plan before you apply. If you can prove that your loan will help your business grow, you might have a shot at the funds you need, even if you have imperfect credit.

#4 – Alternatives

Most of the options above are supplied by big banks, which means that if you want to obtain a loan, you will need a good credit score and/or many years in business. Fortunately, there are alternatives for those who do not meet those qualifications. There are steps you can take to obtain business financing with low credit. For example, a merchant cash advance is one way to get the funds you need, and rather than considering your credit, lenders actually look at the amount of time you’ve been in business along with the amount of monthly credit card sales you process. If you can meet a few easy qualifications, you can get the money you need in just a few days, deposited straight into your business bank account. Repayment terms are based on a portion of your daily sales.

As you can see, there are many ways to raise the capital you need to grow your business. Whether you take out a short- or long-term loan, apply for a line of credit, or even apply for alternative financing such as merchant advances, there is something to suit your needs.