Canadian Small Business Financing: A Definitive Guide - Evolocity

Canadian Small Business Financing: A Definitive Guide

Canadian Small Business Financing: A Definitive Guide

Canadian Small Business Financing: A Definitive Guide

We’ve compiled everything you’ll ever need to know about small business financing in Canada in one place. This multi-chapter guide will cover what small businesses should expect when applying for, securing, and repaying a loan or merchant cash advance.

Chapter 1: Preparing Your Small Business for Financing

If you’re about to apply for a small business loan, hang tight for a few more minutes. In chapter 1 of this guide, we will look at how you can prepare your business before submitting your application. There’s plenty you can do to make your business more attractive to lenders – it all starts by understanding the lenders and their products.

Before diving in, let’s take a quick look at two of the most popular alternative financing products: The Small Business Loan and the Merchant Cash Advance.

Small Business Loan

This product is very similar to a traditional bank loan however it features fixed daily repayments instead of lump sum monthly payments. Loan amounts typically range from $5,000 - $300,000.

Merchant Cash Advance

This works a little differently from a loan. It features variable daily repayments based on a percentage of daily sales. We will dig deeper into the features and benefits of these products in chapter 2 of our guide.

Understanding Costs

Interest Rates

If there’s one cost associated with borrowing money almost everyone is familiar with, it’s interest rate.  By definition, interest rates are the amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets. In layman’s terms, the interest rate represents the cost to you, the borrower, in exchange for the lender taking the risk to lend you funds.

Repayment Types

The method with which you repay the full amount of your loan (the amount borrowed or principal + the interest) varies between lending products. However, these are the more commonly seen methods of repayment:

Monthly Payment

Monthly repayments are the most common form of repayment. It involves making a single payment once a month, rather than many small payments. For example, your rent and telecom bills are monthly payments. A business loan from a bank for example, would usually follow a similar repayment schedule, with one large payment, made monthly.

Fixed Daily Payment

Fixed daily repayment are often seen in the alternative financing (non-bank). It involves making small payments on a daily (usually Monday-Friday) basis. It’s a model that works well for smaller businesses as it aligns well with budgets and prioritizes cash flow management.

Percentage of Sales

The percentage of sales repayment system is most commonly associated with Merchant Cash Advance programs. If daily sales for a given day are $0, then you repay $0 on that day. This program works well for businesses that don’t have predictable cash flow, as they only have to pay when they get paid.

Other fees

Along with interest fees, you will come across some of these fees when looking at your different financing options.

Origination fees: For the creation of a new loan and to help cover the costs the lender will have to take on in doing so.

Platform fees: Charged to aid in maintaining technology platforms.

Service fees: Fees paid in order to have a customer service representative dedicated to your account.

Wire transfer fee: Only charged when an expedited wire transfer is requested by the borrower. It covers the cost of the wire transfer itself.

Returned payment fee: A penalty that is charged when a payment is missed.

Prepayment fee: Should you wish to pay out the remainder of your balance earlier than planned, a prepayment fee for the extra work required to make this possible is charged.

Making Your Business Attractive

Now that you have a better idea of some of the costs associated with borrowing, it’s time to get your business ready. A little bit of work before applying will greatly improve your chances of being accepted for funding.

Your business basics and history

One of the first things lenders want to know is who you are. This is mostly high-level information such as:

  • How long you have been in business?
  • Are you a sole proprietor?
  • Do you lease or rent your storefront?
  • A credit-check

The goal is to provide a full picture of your business right off the bat. It’s important to note that just because your business doesn’t get a shining star in each category doesn’t mean you can’t and won’t qualify for funding. What an alt-lender like Evolocity is analyzing is the overall financial health of your business.

Your ability to pay back the loan

Armed with knowledge about the different repayment types, you need to determine which is best suited to you based on your business needs.

You’ll want to ask yourself questions like:

  • What are my daily sales like?
  • How much are you willing to repay on a daily basis?
  • How long do I feel I need to repay the loan?
  • Take into account seasonal trends in the near future

Measuring the value of current assets

The higher the dollar amount, the more likely lenders are to accept your application. What lenders are looking for is to see which of your assets you can convert into cash within a year.

According to Investopedia, some examples of current assets are:

  • Cash (or cash equivalents)
  • Inventory
  • Accounts receivable
  • Marketable securities
  • Prepaid expenses
  • Other liquid assets that can be readily converted to cash

Evaluating your local market, industry, and economic conditions

Not only are lenders looking to see how well your specific business performs, but how the world your business lives in is doing as a whole. Try and find some up to date industry stats and demographics that can show the strength of the market. Also taking the time to look at relevant economic forecasts will help you get an understanding of where your business is heading. Statscan is a great place to start.

Decision Making

It’s the time to decide if financing is right for you and how much capital you need.

Planning and budgeting

You have to think about your primary reason for seeking financing.

  • Is it for a project like a renovation or just to boost cash flow?
  • What other major projects or investments do you have coming up?


It’s important to have a clear picture of your finances for the period during which you will be repaying your loan.

Determining how much to borrow can be tricky. You’ll want to give yourself a little bit of a cushion in case your projects go over budget, but not borrow so much that you put your business in a potentially tight spot.

Depending on what you need the funds for, and the type of financing product that suits you best, you’ll have to crunch the numbers to determine your business’s ability to take on that type of debt.

Chapter 2: Choosing Between the Different Canadian Financing Options

Now that your business is all set to take on financing, it’s time to choose which lender to apply with. There’s no shortage of options out there, ranging from traditional tier-1 banks to alternative lenders. Loans have been around since 2000 BC - definitely nothing new. During our lifetimes, the easiest way to get financing for your small business was by taking a loan with the bank. Times have changed with the FinTech wave and banks are no longer the be all end all of small business loans. Never before has finding the right fit for your business’s needs been so easy.

Banks vs. Alternative Online Lenders

The first step to finding the perfect lender for you is to understand what makes the banks and alternative lenders different. There are some advantages to getting a business loan online that the banks just can’t provide.

Are online loans secure?

Let’s get this one out of the way. Security is one of the most frequently touched upon topics in the online loan world. Applying for a loan online is very safe, as long as you know that who you are working with has proper security measures in place. The truth is all of us perform transactions online, sometimes several times a day, without blinking an eye. Putting your credit card information on is one thing, putting it on is a different story.

Speed of application process

Any business owner who has applied for a loan with a bank knows just exactly what this process is like. Not only is there extensive paperwork to fill out but more importantly, you often have to wait months before getting the funds. The speed you can get an online loan varies, but at Evolocity, funds can be in your account within 48 hours of approval. Businesses are often in a pinch when they need the extra funds, be it for a repair or other unexpected expenses, and the fast funding time makes all the difference.

Approval ratings

As we discussed briefly in chapter 1, banks and online lenders use very different decision processes. Banks have very strict criteria and turn down businesses simply because they are too small or don’t meet a specific profile. Unlike banks, online lenders focus on many varied criteria and are able to accommodate more of these businesses. That doesn’t mean businesses will necessarily be accepted, nor should they be discouraged from applying for a loan if they have been turned down by a bank in the past.

Which small business financing solution is the right one for you?

We introduced these two popular alternative financing options earlier - it’s time see which one can help your business achieve its goals.

Merchant Cash Advances: variable payment, variable term

Merchant cash advances are the purchase of the future debit and credit card sales that a business makes. The lender advances you the funds and withholds a small, agreed upon percentage of your daily card sales until the advance is paid back. This repayment type is often referred to as “Percentage of Sales”. It makes this a great product for businesses that have steady daily sales or busier, seasonal highs. If your sales go up, you pay back faster. If your sales go down or are zero on a given day then your repayment is smaller or even zero. Merchant cash advances are a versatile financial tool, great for a short-term cash infusion.

Small Business Loans: fixed payment, fixed term

There really isn’t much of a difference between a small business loan from a bank and an alternative lender. Both the repayment term and amounts are fixed so it’s an ideal product if you like knowing exactly how much your payments will be and how long you’ll be paying them for. Where it differs is really the application process, review and payback schedule. The application is short, simple and can be completed online, and funding can happen in a matter of days versus weeks. A small business loan from an alternative lender with often use “Fixed Daily Payments” instead of “Monthly Payments”. Small business loans are a tried and true financing option ideal for investment in the growth of a business.

Chapter 3: Repaying Your Loan

Your business got the funding it needed and your projects are well under way - it’s time to start repayment.  Depending on the type of financing you took, your repayment process will be very different. By understanding how your cash flow is affected, repaying your loan will be a smooth and painless process.

Repayment Types

In chapter 1, we introduced the 3 most common types of repayment. Now, we can look at them in more detail and see how your business can best manage new debt.

Monthly Payment

As we know, monthly payments involve making a single payment once a month. You’ll have this type of repayment with a business loan from a bank. You’re already budgeting for other monthly payments such as rent, telecom bills, credit card statements and car payments. The best way to prepare your business is to budget early in the month, as you know a large payment will be debited from you at the end of the month (or on the date on your agreement). This means you will need to have significant cash set aside to support it. It’s easy to fall into the trap of using your free cash flow throughout the month with little regard to the upcoming payment. Our advice is to try and put a little aside on a daily basis. You’ll barely notice you’re doing it and it will make your payment date come and go with little to no worry.

Fixed Daily Payment

Fixed daily repayment most common with business loans from alternative lenders. Daily repayments are easier on your cash flow than a monthly one - instead of managing your cash flow throughout the month, you only have to budget for it on a day to day basis. The payments are significantly smaller than monthly ones as well, so they won’t have as noticeable an impact. What’s most important is to ensure you have the sufficient funds in your account every day to avoid returns and the costs associated with returns.

Percentage of Sales

The percentage of sales repayment system is most commonly associated with Merchant Cash Advance programs. Out of the 3 repayment types, this one is by far the easiest to manage - it essentially manages itself.  You never have to worry about putting cash aside as repayment is based solely on your daily debit and credit card receivables. It really works alongside your cash flow and helps you pay back your debt faster when business is good, while giving you a break when things are slow.

Communicating with your lender

Just because the lender has taken care of getting you the funds, it doesn’t mean their job is done. They are a great resource to lean on should you have any questions of concerns with repayment and future fundings.

Customer service

One advantage to taking financing with an alternative lender is their ability to provide hands on, post-funding, customer service. Most lenders will give you access to a customer portal where you will be able to monitor your account activity. If you need more information than what’s provided there, you can always reach out to the customer service department of your lender who should be able to solve any issues you have.

Applying for renewals and top-ups

If you need some additional financing or want to take out an entirely new loan, your current lender is your best bet. Since they already have all your information and understand your business, the turnaround time on receiving the capital you need is usually extremely quick. Depending on which lender you take financing with, chances are you will have a renewal specialist on your account that can help you with the process. As easy as first time borrowing is, applying for a renewal or top-up is that much easier. Curious to see what options are available to you? Just give your lender a call.

That’s it! From the very beginning of your funding journey until the end, you’re covered. Once your business had gone through the process of applying for, receiving and repaying a loan, you’ll feel like a pro. It’s really not as hard as it may seem on the surface. Keep an eye on the Evolocity blog for other tips and tricks to make running a small business as easy as possible.

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