If you are a small or medium business owner who has struggled with obtaining a loan in Canada in the past and 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 your options carefully.
(P2P) lending is gaining popularity, 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 borrow comes from a pool of resources made possible by members of the P2P site. The most popular sites for P2P lending offer loan amounts and repayment terms between 36 and 60 months, and for the most part, they have fixed interest rates based on your credit history.
A merchant cash advance is another option if many of your customers pay 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 a considered. These lenders consider the time your business has been opened 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 repay this type of loan with a percentage of your daily sales. It’s one of the most flexible ways for businesses to get funding.
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 ranges from 75% and 85%. The lender pays you the rest of the money minus any fees when you collect the invoice payments. There is usually no credit check or collateral required, but the fees are higher than conventional business loans.
Equipment loans are self-explanatory, and while they may not suite all businesses, they can certainly come in handy in certain situations. Even startups can apply for equipment loans since they are usually 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 makes repayment more affordable.
As you can see, there are several options for small and medium businesses to obtain funding without relying on banks. Be sure to examine your options carefully to understand which one could benefit your business the most.
Advice and research for Canadian small businesses from our expert team