As a small or medium business owner, you might feel overwhelmed by all of the loan options in Canada that are available to you. Whether you need a small amount of money over a short period of time or a larger amount of money over the course of a year or more, navigating the terms and conditions can be daunting.
Banks and private lenders consider many different factors when it comes to no-collateral loans. For the most part, your credit history will play the largest part in the lending decision. If you have poor credit, a large bank will likely deny you for such a loan, even if your business is a huge success overall. This is because there is no collateral for the bank to sell in the event that you default on your payments, which means that the bank assumes a great deal of risk. Private lenders, on the other hand, will often consider your business plan, your overall business knowledge, and your revenue alongside your credit history when it comes to offering you a product that will suit your needs.
For those who have excellent credit, the interest and fees associated with no-collateral loans are both quite low. Conversely, for those who are building credit, the interest and fees are much higher than those associated with secured loans. If you want to lower the interest and fees associated with an unsecured loan, consider a shorter repayment term. Your payments will be higher this way, but because you agree to repay the funds in short order, it lessens the lender’s risk and nets you a much lower interest rate.
If you want to avoid the strict credit score requirements that traditional banks impose, you can apply for a variety of no-collateral loans through private lenders. Rather than simply checking your credit and making a decision based on your score, these lenders actually consider your business and the amount of revenue it generates. If you meet some basic qualifications, you can get a lump sum of money in just a few days’ time. These lenders ask you to repay your loan with a fixed daily payment, and like other forms of loans, you can choose the repayment term. Most often, you can repay the money over the course of three, six, nine, or even 12 months.
If you want to avoid the stress and high interest associated with no collateral loans, you might consider a secured loan instead. These often have the same type of repayment schedule, but because you put up some sort of tangible product to help cover the value of the loan, the lender assumes much less risk. This means you might be able to get a larger sum of money, lower interest rates, and more flexible repayment terms.
Although unsecured, no-collateral business loans are by far the most popular products out there for small and medium business owners, they are not without their disadvantages. Understanding the differences between these and other types of loans can help you make better decisions for the well-being and success of your business.
Advice and research for Canadian small businesses from our expert team