Bank vs. Private funding comparison in Canada

There are many funding options available to fund your business in Canada. But which one is the best option for you, a small business owner? What are the pros and cons of different business funding options?

To start things off, it’s important to understand that there are two types of funding institutes:

  1. Banks
  2. Private Lenders

Both lenders assess your risk as a borrower. The banks use personal credit history to determine this risk.  Private lenders use your business bank statements, in addition to credit history.  Private lenders use your business bank statements to create financial statements that are used to assess your risk. Measuring your borrower’s risk is something that every business should consider when looking for business funding. Now, let’s discuss your business financing options and their pros and cons.

Traditional funding through banks

Bank Loan

You are asked for quite a few things upfront when applying for a bank loan. Usually, you are asked for upfront collateral, 2-3 years of tax assessments and proof of income. The bank gives you money based on the outcome of this assessment. If your credit score is good, you are given the funds. Then, you are charged an interest rate on this borrowed money. This is one of the cheapest methods of getting funding for business owners. But only if you have a good personal credit score.


  • Reliable lender
  • Large funding amount available
  • Inexpensive
  • Long payment terms
  • No pre-payment penalties


  • Need an excellent credit score
  • Application process too troublesome
  • Receiving funds can take long
  • Qualifying is tough

Line of Credit

In Canada, this is by far the cheapest way to receive business funding for small business owners. By “cheap” we mean that the interest rates are usually lowest and the repayment terms are flexible. You only need to get qualified once for a maximum credit limit and you can borrow any amount within this limit. Learn more about a small business line of credits here.


  • Low interest rates (usually under 5%)
  • Flexible repayment terms
  • Get qualified once for a set amount
  • Interest is only applied on the borrowed amount, not the entire amount


  • Qualifying as a small business owner is tough
  • The process can take an upwards of 60 days
  • Upfront collateral required
  • Personal credit score makes a big impact
  • Strict qualification criteria

Private business funding institutes

The private financing companies exist to serve more specialized needs. They are in business to use their innovative ways to deliver financing to small business owners. They focus more on convenience, customer service, and product delivery. For example, here at Thinking Capital, we are more focused on how we can get our customers the money they need, as soon as possible. They are typically more expensive than banks, but are also less strict. Private lenders are able to provide timely funding to small business owners.


  • Revenue-based approval
  • Not only based on personal credit score
  • Extremely short application
  • Can be completely online
  • Multiple borrowing options


  • High interest rates
  • Pre-payment penalties
  • Lower funding amounts


Depending on your situation, the type of lending you require may vary. The origination criteria between banks and private lenders differ vastly. For you, as a borrower, there are certain pros and cons to consider your financing options. Ideally, you need a good personal credit score (over 650) to even consider applying for a business loan from a bank. A private lender only needs to see that your business is generating enough revenue to pay the borrowed money back. If you decided to go with a private lender, we suggest checking out the Top 5 things to ask a private lender to ensure you are asking the right questions.

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