How to Get Financing For Your Small Business

Whether you’re just starting a business from the ground up or are looking to expand operations, you need money, and usually a lot of it. Perhaps you’re looking to buy more inventory, hire more employees, or run a marketing campaign. There are seemingly endless expenses involved in starting and growing a business, and oftentimes, a little financial assistance may be required. 

If you don’t have the liquid cash available to help fund your business endeavours, then a business loan might help.

Types of Loans to Help Finance Your Small Business

Various loan options are available to help fund your business. The loan type you choose depends on the specific purpose of the loan. Here are some options to consider:

Small Business Loan

If you’re looking for a lump sum of cash that you can pay back in installments, then a small business loan may be a good option. It can help small businesses start or grow their operations, fund cash flow needs, or pay for equipment and other inventory. These types of loans can be customized to suit different needs, making them a flexible tool for businesses of various sizes and stages of growth.

What Can Small Business Loans Be Used For?

Small business loans can be used to fund a variety of expenses, including:

• Starting a new business 
• Daily operating expenses, like rent, utilities, and employee payroll
• Inventory and equipment purchases
• Expansion, such as scaling operations or opening new locations
• Marketing campaigns to gain new customers 

Who is a Small Business Loan Best For?

A small business loan is best for startups, expanding businesses or seasonal businesses that experience busy and slow times of the year.

Merchant Cash Advance

A merchant cash advance is a type of financing where businesses sell a portion of their future credit card sales or daily revenue in exchange for a lump sum of money upfront. This form of financing isn’t technically a loan, since there aren’t set payments required over a certain schedule. Instead, a merchant cash advance is based on the expected sales of the business.

What Can a Merchant Cash Advance be Used For?

A merchant cash advance can be used for several purposes, including:

• Covering unexpected expenses
• Expanding operations
• Purchasing new equipment or inventory
• Bridging cash flow needs
• Marketing campaigns to quickly boost sales

Who is a Merchant Cash Advance Best For?

A merchant cash advance is best for businesses with high credit card sales, businesses that need quick cash and seasonal businesses that experience fluctuations in revenue 

Invoice Factoring

Liquidity can be a big problem for a business, especially when clients are slow to pay. With invoice factoring, you can cash out those payments immediately. It is an alternative type of financing that involves selling your pending invoices to a third party, or “factoring company”, at a discount as a way to boost cash flow and improve revenue stability. 

In return for selling these accounts receivables, the business receives cash upfront, which is typically a percentage of the invoice value. The factoring company then receives payment from customers when it’s due.

What Can Invoice Factoring Be Used For?

Invoice factoring can be used for various purposes, including:

• Increasing cash flow to cover daily expenses without having to wait for clients to pay their invoices
• Buying equipment and inventory
• Funding expansion opportunities as they arise
• Managing periods of slow sales

Who is Invoice Factoring Best For?

Invoice factoring is best suited for:

• Seasonal businesses that experience slow periods of cash flow at certain times of the year
• Businesses with customers who may be reliable with payments but take a long time to pay
• Businesses that may not qualify for traditional financing
• Businesses that need immediate access to cash

Where Can You Get Financing For Your Small Business? 

You can obtain financing for your business from a handful of sources:

Banks

Traditional banks offer a variety of loan types for businesses. However, these lenders typically have tough lending criteria. To be successful in obtaining a business loan from a bank, you’ll generally need good credit, proof of financial stability, collateral, and a detailed business plan. 

Moreover, banks generally require businesses to be established for 12 months before funding. 

Direct Private Lenders

Start-ups and smaller businesses may have an easier time qualifying for a loan with a private lender. Since private lenders are not federally regulated, they often have more flexibility with their eligibility requirements. Some lenders only require you to be in business for 3-6 months to be eligible for a loan. 

These types of lenders are more often associated with businesses and individuals who don’t meet the credit criteria to get approved for a loan from a bank or other conventional lender.  

How to Find the Best Business Loan Offer?

To help you quickly find the right lender that can offer you what you need based on your credentials, you can use an online loan comparison platform like Loans Canada. Online comparison platforms like these allow you to compare multiple lenders and offers with a single application. Similarly, it can also help you: 

• Find Lenders That Work With Bad Credit Borrowers: A lender’s offer will be based on a few key factors, including your credit score. The offers presented to you will be based on the credit score you enter when you begin your search. No matter your credit score, you’ll be able to find lenders that work with bad credit borrowers. 
• Compare Multiple Lenders & Offers: Based on the information you provide about yourself and your business, Loans Canada will quickly populate quotes and loan offers from several lenders. From there, you can quickly scan and compare each offer to find the best one for you.
• Find Lenders That Work With Newer Businesses: Some lenders may prefer to work with businesses that have worked in their respective industries for a while, as this may present less of a risk. However, using a loan comparison platform can help you find lenders who are willing to work with businesses that have limited time in their field.

Requirements For Business Financing

To secure financing for your business, you’ll need to meet various requirements. These criteria may vary by lender, though they typically include the following:

Business Plan

The lender may request your business plan to determine whether to extend financing to you. A business plan outlines your company’s goals, and the tactics used to achieve them. 

A detailed plan shows the lender that you’re serious about your business and have put in a lot of effort to ensure its success. It will also tell lenders what you need the funds for, such as buying equipment and inventory, hiring employees, and marketing.

Financial Performance

Lenders will want to know about your business’s financial health to determine the likelihood that your company will be able to make loan repayments. To prove your business’s financial health, you may need to submit certain documents to the lender, such as the following:

• Business bank statements
• Cash flow statements
• Income statements
• Business tax returns

Revenue

Lenders typically want to know how much revenue is earned on a monthly or annual basis. Your business’s revenue will show the lender that you have enough money coming in to cover both your current expenses and the new loan you’re applying for. 

Credit Score

Some loans don’t require a specific credit score range, while others may require good credit. Traditional lenders like banks will likely look at your personal credit score, as well as your business credit scores and reports.

In any case, having a healthy credit profile is very helpful, regardless of whether the lender requires good credit or not. A good credit score makes you less of a risk to the lender, who may be willing to extend a lower interest rate and better terms in exchange.

Does The Government Offer Any Financial Assistance For Businesses?

The federal and provincial governments offer various financial assistance programs for businesses in the forms of loans and grants, including the following:

Canada Small Business Financing Program (CSBFP)

The Canada Small Business Financing Program helps small businesses secure financing to cover the cost of buying business assets, like real estate and equipment. The goal is to make it easier for businesses to get access to much-needed capital.

Canada Job Grant

The Canada Job Grant provides federal and provincial funding to businesses to subsidize the cost of training employees to build a skilled team of workers. The Canada-Ontario Job Grant Program, for instance, provides companies with up to $10,000 per person for training expenses.

Final Thoughts

It takes money to make money, especially in the world of business. If you’re looking to build a business from the ground or want to take your existing business to new levels, then a few extra thousand dollars may be required. Thankfully, there are several business financing solutions available, each one tailored to specific purposes. 

FAQs

How Much Financing Can You Get For Your Business?

Business loan amounts vary greatly. The amount you can qualify for depends on several factors, including the strength of your business’s finances and revenues, your credit profile, and what you need the money for.

Will My Personal Credit Score Affect My Ability to Get a Business Loan?

Yes, your personal credit score can impact your ability to get approved for a business loan. A higher credit score can help you qualify for a loan. That said, bad credit doesn’t automatically prevent you from getting a business loan, as other factors are involved in the process.

Do I Need to Provide a Personal Guarantee to Get a Business Loan?

Lenders often require some form of guarantee in case you don’t repay the loan. This guarantee can come in several forms, such as equipment, vehicles, real estate, accounts receivable, intellectual property, or personal assets.

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Ontario Business Central Inc. is not a law firm and cannot provide a legal opinion or advice. This information is to assist you in understanding the requirements of registration within the chosen jurisdiction. It is always recommended, when you have legal or accounting questions that you speak to a qualified professional.