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Small Business Funding

Best Small Business Loans in Canada

Small businesses make up approximately 98% of businesses in Canada, employing about 70% of the Canadian workforce.

There are many small business funding options available to help small businesses in Canada get started, manage expenses, and continue to grow. Between government-supported programs and lenders like the Canada Small Business Financing Loan program and the Business Development Bank of Canada, commercial banks, and alternative lenders, it can be difficult to choose the right funding for your business.

To help you find the right funding for your needs, we’ve outlined 4 of the best small business loans in Canada including CSBFL loans, BDC loans, bank loans, and alternative funding.

1. Canada Small Business Financing Loan (CSBFL) Program

The Canada Small Business Financing Loan (CSBFL) program is administered by the federal government, similar to the Small Business Administration (SBA) in the United States. The government shares the risk with the lender by guaranteeing up to 85% of the loan, making it easier for small businesses to get financing from financial institutions.

Up to $1M in funding is available, but CSBFL funds can only be used for specific purposes, including:

  • Purchasing or improving land or buildings used for commercial purposes, typically with up to 15 year terms
  • Purchasing or improving new or used equipment, typically with up to 10 year terms
  • Purchasing new or existing leasehold improvements, such as renovations to a leased property by a tenant, typically with up to 7 year terms

No more than $350,000 can be used for purchasing leasehold improvements, improving leased property, or purchasing or improving new or used equipment. Past purchases made within the last six months are eligible for financing. Funds cannot be used for goodwill, working capital, inventory, franchise fees, or research and development.

To help you find the right funding for your needs, we’ve outlined 4 of the best small business loans in Canada including CSBFL loans, BDC loans, bank loans, and alternative funding.

Who is eligible for a Canada Small Business Financing Loan?

Canada Small Business Financing Loans are available to both established small businesses and start-ups operating in Canada with gross annual revenues of $10M or less. Farming businesses are not eligible.

Collateral or a personal guarantee may be required, potentially up to 25% of the loan amount.

How to apply for a Canada Small Business Financing Loan

Business owners must apply for a Canada Small Business Financing Loan through partnering financial institutions, including most major commercial banks. These institutions deliver the program and are solely responsible for approving your application. If you are approved, the financial institution will disburse the funds and register the loan with Innovation, Science, and Economic Development Canada.

Rates and fees

Business owners must apply for a Canada Small Business Financing Loan through partnering financial institutions, including most major commercial banks. These institutions deliver the program and are solely responsible for approving your application. If you are approved, the financial institution will disburse the funds and register the loan with Innovation, Science, and Economic Development Canada.

Rates and fees for Canada Small Business Financing Loans are determined by the partnering financial institution. Rates may be fixed or variable depending on the loan amount, as well as your business’s creditworthiness and risk assessment.

All Canada Small Business Financing Loans are subject to a registration fee that equals 2% of the total loan amount. The borrower must pay this fee to the lender, but it may be financed as part of the loan. Other fees, such as document preparation and application fees, may apply and will depend on the lender you’re working with.

Who should apply for a Canada Small Business Financing Loan?

  • New businesses looking for financial support to start or grow their business
  • Established businesses experiencing issues with cash flow as a result of a large investment

2. Bank loans

Canada’s five major banks—TD, RBC, Scotiabank, BMO, and CIBC—all offer loan programs for small businesses. Some of these banks offer funding through the Canada Small Business Financing program in addition to other funding options such as term loans, lines of credit, asset-based financing, operating credit, equipment financing, commercial mortgages, and more.

Every bank offers different loan options with different amounts, terms, and fee structures. Short term and operating loans, mid term, and long term loans are available with loan amounts starting at $10,000. 7-10 year repayment terms are common, but some loan options have terms up to 30 years.

Who is eligible for a bank loan?

Depending on the type of funding you’re seeking, funding from commercial banks (excluding Canada Small Business Financing Loans) may be harder to acquire than other lenders. Most small businesses lack the credit history or don’t have the collateral required to qualify, especially if they’re in the start up phase. In this case, alternative lenders may be the best option, especially if you’ve been in business for at least six months.

How to apply for a bank loan

Commercial banks typically do not offer an online application, and require business owners to speak to a representative in-person or on the phone to initiate an application. Application fees may apply.

Rates and fees

Fixed and variable rates are available depending on the specific type of funding you’re seeking.

Who should apply for a bank loan?

  • Established business with strong credit and financial histories seeking larger loans and longer terms

3. Business Development Bank of Canada loans

The Business Development Bank of Canada (BDC) is wholly owned by the government of Canada. The BDC offers a number of funding options for businesses at every stage of the growth process, including loans for businesses in operation for less than 12 months, between 12-24 months, and for longer than 24 months.

Funding up to $100,000 is available, and in some cases can be deposited within 24-48 hours. A number of funding options are offered depending on how you intend to use the funds. Funding is available for a number of purposes, including:

  • Supporting small projects
  • Buying or renovating facilities or real estate
  • Working capital
  • Purchasing or transferring a business
  • Purchasing equipment
  • Fulfilling large purchase orders
  • Investing in new technologies

Special financing for tech companies is also available, as well as financing programs for black and indigenous business owners.

The BDC also offers advisory and consulting services, including leadership and management coaching, business strategy, financial management, operational efficiency, e-commerce, digital technology advice, and more.

Who is eligible for a BDC loan?

BDC loans are available to businesses in Canada at all stages of growth, including start-ups. Eligibility requirements depend on how long you’ve been in business and what type of funding you are seeking.

To apply for a BDC loan, you must be a Canadian citizen or permanent resident and have reached the age of majority in the province or territory in which you live.

How to apply for a BDC loan

Business owners can apply for BDC loans online using the BDC’s step-by-step application process. Be prepared with information about your business and your business’s project. Once you submit the online form, a representative will reach out to you to discuss financing options.

Rates and fees

Rates and fees will depend on the specific type of funding you’re seeking, as well as your funding amount and your business’s credit and financial history.

Who should apply for a BDC loan?

  • Businesses in any stage of growth seeking funding or mentorship and advice

4. Alternative lenders

Alternative lenders like Greenbox Capital® emerged after the 2008 recession in response to a growing need for accessible small business financing. These lenders base approvals on more than just your credit score, making it easier for more businesses to get the funding they need. They also generally offer the simplest application forms with fewer paperwork requirements, making alternative lenders ideal for business owners who don’t have time to put together an extensive application or who need funding quickly.

Alternative lenders offer multiple types of funding, including traditional lending options like terms loans and lines of credit, as well as innovative new funding options like merchant cash advances and invoice factoring. Keep reading to learn more about these funding options.

There are no restrictions on how funds can be used. Common uses for alternative funding include:

  • Working capital funding or extra cash flow. Alternative funding can be used however you need, whether it’s for payroll or rent, or to kickstart marketing or other growth strategies, or respond to unexpected expenses.
  • Financing the purchase of equipment or inventory
  • Remodelling or renovating, purchasing a new location, or moving to a new location
  • Hiring and training new employees

Who is eligible for alternative funding?

Eligibility requirements vary by lender. Most lenders require businesses to be in operation for at least 6 months and meet a minimum monthly revenue threshold for 3 consecutive months.

Alternative lenders base approval on more than just a business’s credit score, and will consider other factors like revenue and cash flow, vendor payment history, and online reviews. This means that even businesses with low credit scores can be approved for funding from these lenders.

How to apply for alternative funding

Business owners can apply for alternative funding online using a simple, streamlined application form. Once you submit your form, a representative will contact you to discuss your funding options. Depending on how quickly you are able to supply the requested paperwork, you may even receive your funding in as little as one business day.

Rates and fees

Because approval requirements are more flexible, rates and fees may be higher. However, it’s a common misconception that rates and fees are always higher than other forms of funding. Ultimately, your rates will depend on your business’s creditworthiness and risk assessment.

Who should apply for alternative funding?

  • Businesses seeking fast funding
  • Businesses that don’t have collateral
  • Businesses seeking smaller loan amounts
  • Businesses with lower credit scores

Small Business Funding Types in Canada

Multiple types of funding are available through the Canada Small Business Financing Loan program, commercial banks, the Business Development Bank of Canada, and alternative lenders. Here are 5 of the best small business loan options in Canada:

1. Term loans

Available from:

  • The Canada Small Business Financing Loan program
  • Commercial banks
  • The Business Development Bank of Canada
  • Alternative lenders

With a term loan, a lump sum of funding is given to a business and is repaid over a set term length, typically in monthly instalments. Term loans often have longer term lengths depending on the purpose of the loan—real estate loans, for example, may have longer term lengths than equipment loans. There may be restrictions on how the funds can be used.

Funding limits, rates, and fees for term loans depend on your lender, your business and personal credit history, your overall risk assessment, and the purpose of the loan.

Term loans are ideal for:

  • Businesses seeking larger loan amounts to finance specific purchases

2. Lines of credit

Available from:

  • Commercial banks
  • The Business Development Bank of Canada (called a “bank operating loan”)
  • Alternative lenders

Business lines of credit are similar to business credit cards, but with longer terms and higher limits. With a line of credit, you can draw and repay from the line as needed, and you only ever pay interest on the amount you borrow.

Business lines of credit are ideal for:

  • Businesses that want a flexible cushion for cash flow troubles or access to extra working capital to manage unexpected expenses

Learn more about alternative business credit.

3. Merchant cash advances

Available from:

  • Alternative lenders

A merchant cash advance (MCA) is not technically a loan. It’s a non-loan form of financing known as a purchase of future receivables. With an MCA, you’ll receive cash up front in exchange for a percentage of your business’s daily or weekly debit and credit card sales until the advance has been repaid. There are no restrictions on how funds can be used.

Merchant cash advances are ideal for:

  • Businesses that have a large number of card transactions
  • Businesses with lower credit
  • Businesses seeking flexible working capital funding

Learn more about merchant cash advances.

4. Invoice factoring

Available from:

  • Alternative lenders

Invoice factoring is another non-loan form of financing known as an asset purchase. With invoice factoring, you can leverage your business’s unpaid invoices in exchange for cash up front by essentially selling invoice(s) to a lender called a “factor” who then advances you up to 90% of the invoice’s value. The remainder of the invoice is paid to you when your client pays, minus any fees.

Invoice factoring is ideal for:

  • Businesses with long accounts receivable periods

Learn more about online invoice financing.

5. Equipment or inventory financing

Available from:

  • Commercial banks
  • The Business Development Bank of Canada

Equipment and inventory financing is designed specifically to fund the purchase or repair of expensive equipment or inventory. The equipment of inventory serves as collateral to secure the loan, and the loan can only be used to purchase these things.

Equipment or inventory financing is ideal for:

  • Businesses with significant equipment or inventory needs

What’s the best small business loan in Canada?

There are many small business funding options available in Canada, including:

  • The Canada Small Business Financing Loan program
  • Commercial banks
  • The Business Development Bank of Canada
  • Alternative lenders

The best small business loan for your business ultimately depends on why you are seeking the loan, how long you’ve been in business, and your credit and financial history.

Alternative lenders like Greenbox Capital offer a number of small business funding options in Canada, including merchant cash advances, term loans, online invoice factoring, and business lines of credit. Alternative lenders are ideal for businesses who need funding quickly, don’t meet the strict criteria of the SBA and other traditional lenders, or would prefer not to seek funding from friends or family members. With funding from as little as $3,000 up to $500,000, business owners can access alternative funding that suits their unique needs,

Learn more about alternative business loans in Canada

Sources
  1. Key Small Business Statistics – January 2019“. Statistics Canada. Last updated December 6, 2019.

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