Choosing the right Lender for Your Business - Evolocity Financial Group

Choosing the right Lender for Your Business

Choosing the right Lender for Your Business

There are a few lender options available to small businesses in Canada, but which one is the right one for you and your business?

The scenario:

You’re a small business owner in Canada and you want to obtain financing to grow your business. Maybe it's  to make some updates, or deal with expenses, or simply to get you through a slow season. There are a number of options available in Canada but which commercial lender is the best option for you?

Before applying for any type of funding with any lender you should be able to answer the following questions:

  • What do you need the money for?
  • How much money do you need?
  • How long will it take to pay back?
  • How is your business doing financially?
  • How much collateral do you have, if any?
  • When do you need the money?
  • What kind of business do you own?

These will help determine what kind of funding you should pursue. The major types of funding available for small businesses are:

Each type of funding varies by lender on qualifications, restrictions, interest rates, amounts, and turnaround time.

Government loans

The small business financing program offered by the government of Canada is a good option for small businesses with gross annual revenues of $10 million or less. This type of loan helps small business that need  funding for a specific reason like opening a new location, making renovations, or leasing new equipment or vehicles. The business will still have to apply for the loan through a chartered bank. It’s usually easier for small businesses to obtain a loan through this program because the government shares the risk with the lender (the chartered bank in question). The downside to this type of funding is the number restrictions imposed on how the funds  can be used. The turnaround time for the loan may also take longer than a direct loan from a bank or alternative lender. If your business needs quick funding this option may not be the best alternative for you. To apply for the government business loan, you will be required to present a detailed business plan and a complete financial overview to a chartered bank. Keep in mind that the bank is solely responsible for granting the loan, the government simply shares in the risk.

What you can use these funds for

  • To purchase, lease, or improve equipment, like a vehicle or computers
  • Renovations
  • Eligible franchise costs

What you can’t use these funds for

  • Working capital
  • Advertising
  • Inventory
  • Labour salaries
  • Franchise fees
  • Research & development

What you’ll need to apply

  • A detailed business plan
  •  A complete financial picture of your small business along with a supporting budget.

Government loans are generally best suited to well established small businesses with needs that fall within the approved uses mentioned above. If you’re needs go beyond these guidelines, then an alternative lending solution is likely best for you.

Conventional Bank Loans

Banking institutions are involved in providing loans through the government’s small business financing program but they also provide conventional small business loans. What’s the main difference? You’re not as restricted in the use of your funds. On the other hand, the risk is no longer shared, which  means that the bank will be more far more selective with who they lend to.

You will need to provide as much information as you can on your business, the more the better. That includes a complete financial picture of your business and a detailed business plan showing why you need the money, and how you plan to spend it. Don’t skimp on the details. Showing a traditional lender that you’ve run your business well will give them the confidence they need to invest in your business.

Banks are one of the more restrictive sources of funding and the approval rates are not as high as they are with a government-backed loan or loans provided by an alternative lender. Banks are less inclined to loan out to small to medium businesses due to their perception of increased risk.

Small businesses will benefit from lower rates than with another type of lender but repayment terms are typically shorter and it can take more time to receive your funds. If your financing needs are time sensitive, this may not be the best option for you.

What you can use these funds for

  • Renovations
  • Equipment leasing
  • Inventory
  • Salaries
  • Anything your business needs

What you’ll need to apply

  • A detailed business plan
  • A complete financial picture of your small business, with a supporting budget

How to apply

  • Same as with the government-backed loan, you must bring your completed business plan to a chartered bank, and speak to a loan officer to apply.

Alternative Merchant Lender

An alternative merchant lender like Evolocity Financial Group provides funding to small and medium sized businesses that would otherwise not qualify for funding from a bank. The 2008 economic slowdown resulted in banks becoming more restrictive with who they lent funds to. This makes it increasingly difficult for certain types of small businesses to qualify for funding.

This type of lender evaluates small businesses on more than just the owner’s personal credit, and the turnaround time is much faster - as little as 48h upon approval in some cases. The cost of lending is usually a bit higher due to the increased risk taken on by the lender on behalf of the merchant.  However, this  allows for a higher loan approval rate compared to traditional lending institutions. There is also the benefit of increased flexibility around repayment terms.

What you can use these funds for

  • Renovations
  • Equipment leasing
  • Inventory
  • Salaries
  • Advertising
  • Working capital
  • Rainy day fund
  • Opening new locations
  • Anything your business needs

What you’ll need to apply

  • Basic information about you and your business: name, address, business start date, and lease information
  • Financial information: bank statements for the last 3 months

How to apply

This varies from lender to lender but with Evolocity, you can apply directly online.

Now that we have explored the main types of financing available for your small business here are some tips to consider before applying for funding.

Have your business plan ready

This is a must if you plan on applying for funding from a conventional bank or though the government’s small business financing program.  It’s a good idea to have this done regardless of circumstances because it gives you a structured plan to move your business forward. Your business plan should be a living document. This means the plan should evolve or adjust over time. It’s a good practice to re-examine it on a regular basis. This will keep your business nimble and adaptable.

Prepare a realistic budget

Keep your budget fluff-free; you need to be able to justify every line item to your lender of choice. It’s a numbers game. Traditional lenders aren’t concerned about your vision or your product’s potential. To sell lenders on your small business being a sound investment, you’ll have to show them real numbers with the appropriate data to back it up. Ensure that you present real figures with precise details supporting them. Be conservative in your estimations, don’t overestimate your income, or underestimate your expenses.

Have healthy rainy day fund

As a small business owner it is vitally important that you have enough savings to cover any unexpected expenses should they arise. This protects your business from having to borrow more money in case  your business takes an unexpected downturn.

Don’t sweat your mistakes, but learn from them

While it’s good to have a handle on your finances, don’t let it stress you out. Chances are you will make mistakes along the way and that’s ok as long as you learn from them. This is called successful failure and it’s all part of being a business owner. Don’t let financial worries prevent you from focusing on making your small business dream a success.

 

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