The Best Small Business Loans in Canada

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Last updated on August 5, 2020

Starting a new business is one of the biggest risks a person or group can take. But after doing the market research, determining demand and acquiring your first clients, it can also be one of the most rewarding ventures ever.

When its time to expand, business loans can provide a boost of capital to open a new location, add staff, or simply expand your stock and services. But where can you find the best business loans in Canada? Should you go to the bank, or look to government sources?

Although Canadian lenders tend to skew conservative, your small business can qualify for the right Canadian business loan with a strong business plan and growth trajectory. Here’s everything you need to know about finding the best business loans in Canada.

The Best Business Loans in Canada

If you’re ready to grow your business, there’s a lot of lenders out there who are ready to help you get to the next level. Below is our list of the best business loans in Canada, and how you can get them.

The Business Development Bank of Canada

Billed as the “only bank exclusively devoted to entrepreneurs,” the Business Development Bank of Canada (BDC) offers a suite of microloans to all different types of businesses. Companies with less than 12 months of operating history can apply for a “Futurprenuer Canada” loan for up to $60,000, including two years of business mentoring. Businesses with over two years of history and turning a profit can apply for up to $100,000 or more in funding. With banking solutions developed just for new and small businesses, BDC is one of the best places to get a business loan in Canada.

SharpShooter Funding

Advertising as an alternative to traditional banking options, SharpShooter Funding is one of the newest entries in the category. With backing from Bret “The Hitman” Hart, SharpShooter Funding offers loans for businesses turning $10,000 in monthly deposits with only 100 days in business. Charging interest rates between 5.49% and 18.29%, SharpShooter may be a good option for newer businesses who don’t yet qualify for a Canada Small Business Financing Program loan, but are ready to set their sights on bigger targets.

OnDeck Financing

One of the biggest companies in the world to offer small business loans, OnDeck Financing specializes in business loans for small businesses. The financial institution has over $12 billion in loans in three countries: Canada, Australia, and the United States. OnDeck offers business loans from between $5,000 and $300,000 to qualifying businesses, but charge interest rates between 8% and 29%. What OnDeck lacks in competitive rates, it makes up for in reach and flexible eligibility. OnDeck offers a good bridge between those businesses who aren’t yet big enough to qualify for a Canada Small Business Financing Program, or want to skip the paperwork.

What are Business Loans?

As the name suggests, business loans are a debt extended to individual or group business owners, with the goal of advancing their company forward. While the most common type of business loan is funded through banks, there are many different ways small companies can secure funding.

A business bank loan is funded through a bank or lending institution, and may be secured by collateral, or unsecured based on the company’s credit and growth plans. Through a bank loan, a small business receives a sum of money, on the agreement to pay it off with interest over a set period of time. This is often the most difficult loan to get, because it requires careful planning.

Often used by startups, mezzanine financing grants a loan to a company secured by equity in the business. This option may be beneficial for both the business and the lender, as the funds are secured by the equity stake. If the borrower defaults on the loan, the lender can claim the equity stake as compensation.

Businesses who do not yet have a credit rating or business history can opt for asset-based financing. This type of loan is funded based on the company’s assets, including property or receivables. If the loan ends up in default, the borrower can claim a lien on the value of the collateral asset.

If your business isn’t big enough to get a loan through a bank, caisse populaire or credit union, you may be able to get a microloan. A microloan is defined as any loan under $100,000, and are often offered to businesses by online lenders at varying amounts and terms.

Can I Get a Business Loan from the Canadian Government?

The Government of Canada offers many different loan programs for small businesses. The most popular is the Canada Small Business Financing Program, from which startups and small businesses operating for profit with gross annual revenues of $10 million or less can apply for a loan through a participating financial institution.

If your company qualifies, you can borrow up to $1 million, with $350,000 going towards leasehold improvements, improving leased property, or purchasing new equipment. These loans come in two types: variable rate loans, and fixed-rate loans. Variable rate loans cannot be more than the lender’s prime rate plus 2%, while fixed rate loans have an interest rate equal to the single-family residential mortgage rate, plus 3%.

However, these loans aren’t a blank check to the recipient. Business loans written under the Canada Small Business Financing Program cannot be used to bolster working capital, purchase additional inventory, or pay for business franchising fees. Using money for one of these purposes may cause a financial institution to terminate a loan, making the balance due immediately.

If you believe that you qualify for a loan under the Canada Small Business Financing Program, you can apply through your bank, caisse populaire, or credit union. A lending officer can help you determine how much you may qualify for, and what you will need to present during the application process.

What Do I Need to Present to Get a Business Loan in Canada?

Before you apply for a business loan in Canada, you will need to do your homework on which financial institution is right for you. Different banks have varying requirements, based on their internal criteria.

Once you have identified the right banking partner for your needs, you can begin your application and meet with a lending officer. During the process, you and your partners will be asked to share your business plan and proposal for a loan.

From there, the bank will decide if you meet their criteria, and either extend a loan offer, or deny your application. If your application is denied, it doesn’t necessarily mean your business is universally denied. Rather, you can always apply for a loan at another bank, or consider a microloan for your business needs.

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