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Looking for a Business Loan? Tips to Choose the Right Lender…

From the expert team at Evolocity

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

The Scenario:
You’re an entrepreneur and you want to obtain financing to grow your small business. Maybe it’s to make some much needed renovations, or deal with unexpected expenses, or simply to get you through a slow season. Whatever the reason, there are a number of options available to you. But, before applying for any type of financing you should be able to answer most – if not all – of 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, based on qualifications, restrictions, interest rates, amounts, and turnaround time.

Government-Backed Financing
The small business financing program offered by the Government of Canada is a good option for businesses with gross annual revenues of $10 million or less. This type of loan helps small businesses 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 but it’s usually easier for small businesses to obtain a loan through this program because the government shares the risk with the bank. 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 choice for you. To apply for the government-backed business loan, you will be required to present a detailed business plan and a complete financial overview to a participating chartered bank.

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.

The Bottom Line: Government loans are generally best suited to well established small businesses with needs that fall within the approved uses mentioned above. If your needs go beyond these guidelines or if you need your funds quickly, then another lending solution is likely best for you.


Bank Financing
While participating banking institutions are involved in providing loans through the government’s small business financing program, they also provide business loans through their own lending programs. 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 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 approve you for financing.

 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:

Similarly to a government-backed loan, you must bring a completed business plan to a chartered bank, and speak to a loan officer to apply.

The Bottom Line: Banks are one of the more restrictive sources of funding, so chances of approval are typically much lower when compared to a government-backed loan or loans provided by alternative lenders. With a bank, small businesses will benefit from lower rates compared to an alternative lender but repayment terms aren’t flexible, and it may take up to a few weeks to receive your funds. If your financing needs are time sensitive or you’ve been denied bank lending before, this may not be the best option for you.

Alternative Financing
Alternative lenders like Evolocity Financial Group are a great option if you need funds quickly, and prefer a simpler online application process with fewer documentation requirements. Alternative lenders leverage technology to evaluate small businesses on a lot more than traditional financial indicators, and the turnaround time for an application is usually much faster – as short as a few days. The cost of lending can be a bit higher, but chances of approval are much better compared to traditional lenders. There is also the added benefit of increased repayment flexibility, where you can choose between flexible or fixed repayment options.

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 most recent 3 months 

How to apply

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

The Bottom Line: Alternative lenders are great option if you need funds quickly, don’t have time to put together an updated business plan, or if you’ve already been declined by your bank. The cost of lending can be a bit higher, but chances of approval are much better compared to traditional lenders, and the turnaround time can be as little as a few days. There is also the added benefit of increased repayment flexibility, you can choose between flexible or fixed repayment options.

Lastly, here are a few tips to consider before applying for any type financing:

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 because it gives you a structured plan to move your business forward. Your business plan should be a living document; it should evolve or adjust over time, so it’s a good practice to re-examine it on a regular basis. This will help keep your business nimble and adaptable.

Prepare a realistic budget
Keep your budget fluff-free; depending on your selected lender, you may be required to justify your expenses. Traditional lenders aren’t concerned about your vision or your product’s potential. To sell lenders on your small business being a sound borrower, 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’s important that you have enough cash flow to cover any unexpected expenses should they arise. This protects your business from having to borrow more money reactively.

Don’t sweat your mistakes. 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. If you fail, make it a successful failure. Don’t let financial worries prevent you from focusing on making your small business dream a success!

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