If you’re planning to start a small business, you’ve probably learnt that financing for a new business is one of the biggest challenges that an entrepreneur can face. A startup needs capital, hire new people, research and development, and enhance sales and marketing efforts, all of which require funds. Luckily, there are multiple types of small business loans and funding available.
If you haven’t heard, you can obtain all the information you need about small business loans in Canada at Smarter Loans – Canada’s Loan Directory.
Types of small business financing options
Depending on your business needs and personal financial situation, you can choose from the following business financing options:
- Small business term loans
- Working capital loans
- SBA small business loans
- Equipment loans
- Small business line of credit
- Accounts receivable
- Small business credit cards
Types of Lenders for Small Business Loans
Today, there are more lenders than ever before ready to lend to small businesses. The following are the main types of lenders:
- Local community banks
- Large commercial banks
- Direct online lenders
- Banks backed by SBA guarantees
- Credit unions and cooperatives
- Government financing
Before approving your loan, lenders will want to know how you intend to use the business loan, and how you plan to repay it. When looking at your loan application, there are various categories of metrics that they will calculate, including affordability, liquidity, profitability, debt ratio, etc. Other information that they’ll look at before deciding to give you a small business loan include:
- Credit report/score: Lenders will analyze your credit report/score to determine your creditworthiness. They’ll review your history of making payments under loans, credit cards, and vendor contracts. Therefore, you need to evaluate your personal credit report and straighten out any flaws.
- Outstanding loans versus cash flow: Lenders will assess all your outstanding loans and debts to find out whether your income or cash flow will be enough to pay the new loan you intend to acquire in addition to paying for the existing obligations.
- Assets in the business: Lenders will assess your business assets (especially current assets like accounts receivable and cash) to determine whether you have a good base of assets to go after in case you default.
- Length of operation: Lenders will look at the duration of time your business has been in operation. Most lenders tend to favor businesses that have operated for several years or more.
- Investors: Lenders also tend to favor businesses that have strategic investors, venture capital investors, or prominent angel investors.
- Financial statements: Lenders will also review your financial statements and accounting records. Therefore, ensure that they (balance sheet, business bank statements, cash flow statements, and income & loss statements) are complete, correct and comprehensive.
In Canada, you can obtain a business loan online as long as you’ve been in business for over a year and can show regular monthly sales and revenue. Other things that the lenders usually look at include information regarding the potential collateral availed for the loan, tax returns for the past few years, and state filings for the company, i.e. good standing certificates, certificate of incorporation, etc. Be sure to compare terms and charges by different lenders to find the one that will offer the small business loan you need at the most favorable terms.
Don’t forget to reference Smarter Loans when looking for business financing in Canada. You can easily compare all your available options, and know that you are dealing with a reputable financing provider.
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