Financial institutions in Canada offer different types of business loans to start-ups, franchises, and large and established businesses. The main sources of business financing are credit unions and banks. Small business grants, angel investors, and receivables financing are other options to gain access to funding.
Types of Financing
Businesses have access to different sources of funding such as leaseback and sale solutions, inventory financing, and confidential invoice discounting. Other sources include credit card receivable and purchase order financing and confidential invoice discounting. Micro loans are another option for businesses. There are different micro lending practices and loans available to start-ups, entrepreneurs, and small businesses. The funds can be used for different purposes, including machinery and equipment, working capital, fixtures and furniture, supplies and inventory, and others. The terms and repayment schedule vary based on different factors such as needs and requirements, the planned use of the funding, as well as the amount required. Microloans are offered by government agencies through financial institutions that serve as intermediary lenders.
Other Sources of Financing
Borrowers are offered other sources such as subordinated debt and mezzanine financing, asset based lending, operating lines, and working capital credit lines. Receivable financing is another option for businesses. This is a type of arrangement whereby the applicant uses its receivables as a form of collateral. It is done to guarantee repayment and obtain favorable terms. The financial institution offers a loan that is equal or smaller than the value of the receivables. It is not a good option for old receivables.
Factors to Consider
The type of loan to apply for depends on factors such as purpose, credit quality, and the company’s stage of life cycle. It can be distress, maturity, high growth, or start-up. Large, established companies have better chances of getting approved for a business loan. The options available also depend on your industry or sector. Companies in the hospitality, service, and retail sectors are at a disadvantage, especially new businesses and start-ups. They are considered high risk compared to companies in other sectors. Businesses with better chances include agricultural producers, wholesale companies, real estate agencies, insurance firms, and finance companies.
One factor that improves your chances of getting approved is a solid business plan. Other factors include your credit and payment history and whether there are late and missed payments, delinquencies, etc. While some companies are offered plenty of options, others are forced to look into rare and exotic types of financing. The most important thing is to consider your optimal debt level, especially if you already have debt.