One of the essential ingredients to growing a successful business is money, but it’s surprisingly hard for entrepreneurs to access it in Canada. In this guide, business owners can get insights into how to secure the right loan for their company. We cover the essentials of getting business loans and include in-depth reviews of many of Canada’s biggest online lenders.
Table of contents • Getting started • BDC Small Business Loan • BMO Business Xpress • Clearbanc • FundThrough • HSBC eCredit • Lendified • Lending Loop • Merchant Growth • OnDeck Canada • Thinking Capital
The promises for easy and fast online financing for small-business owners are plentiful. Instead of lengthy applications and weeks spent waiting for a decision and deposit, new companies and established banks tout simple and convenient online applications, followed swiftly with automated decisions and fast funds.
But as Canada’s online lending scene transitions – with both new lenders and traditional banks moving online to offer loans, lines of credit and cash advances – entrepreneurs across the country still struggle to secure capital.
“Many firms, particularly at the startup phase, do struggle to find appropriate lending options,” says Dan Kelly, president of the Canadian Federation of Independent Business.
“There are additional struggles, depending on the sector of the economy, the region that you happen to be in, the size of your business, the length of your business ownership, the gender of the owner. All of those factors can lead to even more challenging relationships with the bank,” Mr. Kelly says.
Personal assets are often a requirement. Not owning a house, for example, can lead to rejections on a business loan. As well, research shows both new immigrants and women have a harder time accessing financing.
Apply for financing before you desperately need it, advises Angela Richardson, an accountant and partner at Richardson Miller LLP who works with many small businesses, and chairs the board of Alberta Women Entrepreneurs. “Be pro-active. Don’t wait until it’s painful.”
The time it takes to apply, be approved for and receive money varies by the lender, but it can range from about a week to a month.
Andrew Zakharia, founder of Toronto-based AZ Accounting Firm, which specializes in small businesses, says once you’ve decided you want to borrow money, the first step is to compile and prepare your company financial statements. Lenders tend to look at financials for the past two years, Mr. Zakharia says, and may also accept year-to-date figures. (If your business is growing and the financials are more favourable in the current period, it may be a good idea to provide year-to-date figures.) Read more tips on getting a small business loan.
BDC Small Business Loan
Since 2015, the Business Development Bank of Canada (BDC), wholly owned by the Government of Canada, has offered an online small-business loan.
Eligibility: Canadian-based businesses that have been generating revenues for at least two years. A good credit history is required.
Amount: Up to $100,000
Rate and term: The loan is offered at a floating base rate of 6.05 per cent, plus an additional interest charge ranging between 1 per cent and 12 per cent, depending on the BDC’s evaluation of the risk. The term is five years. There is an annual loan-management fee of $150.
Repayment: Business owners can choose to postpone their capital payments in the first six months and pay only interest; after that, the loan is repaid in 60 monthly payments. There are no penalties for early or lump-sum repayments.
Speed: The BDC says the amount of time it takes to complete an application depends on how much information the entrepreneur has on hand. Once the application is complete, processing time varies between one to five business days. Once the BDC authorizes the loan, it usually takes four to 48 hours to receive the money.
How it works: Business owners complete an online application containing a series of questions on the business, the specific project that necessitates the loan, and shareholder information. If a business owner is approved for and offered a loan, a personal guarantee is required.
What you need to know: The BDC’s online small-business loan is a good option for businesses not approved by banks. While the BDC’s rates are not as low as the big banks, they are lower than many alternative lenders. Read more on BDC’s online loan platform.
BMO Business Xpress
The BMO Business Xpress service, launched in October, 2018, promises to reduce approval time for small-business loans from weeks to minutes.
Eligibility: Any small business can apply. Both personal and business credit are checked.
Amount: Up to $500,000
Rate and term: BMO says its “competitive rates” are based on the prime rate of 3.95 per cent plus an additional interest rate ranging between 1 per cent and 9 per cent. Application fees start at $500. An annual fee may also apply. The term for the loan ranges between one and five years.
Repayment: Payments are made monthly. The loan is open for repayment at any time, without any penalties.
Speed: The service uses an automatic adjudication strategy, so a customer in a branch can go from conversation to document generation to signing in under 30 minutes. In most cases, the money is advanced to the business the same day or the next day.
How it works: BMO’s platform uses data analytics technology to examine small businesses, a process it says “significantly” reduces the approval period for small-business loans. Borrowers must still apply in person for this product, but BMO says it is working on developing an online version.
What you need to know: Our tester was informed he was not eligible to apply since he has a line of credit at another bank and BMO needs to have first claim on his assets. The bank maintains, however, that it is open for business to those who may have relationships with other lenders. Read more on BMO Business Xpress.
Clearbanc is an online financing company co-led by Michele Romanow of Dragons’ Den fame that caters to web-enabled companies that want money for marketing. As with other merchant cash-advance products, Clearbanc borrowers receive an advance and repay the money advanced, plus a fee, as a predetermined percentage of their sales.
Type: Merchant cash advance
Eligibility: E-commerce and consumer SaaS (software as a service) companies with an average monthly revenue of at least $10,000 for the past six months. Businesses must be incorporated.
Amount: $10,000 to $10-million
Rate and term: Borrowers repay the money advanced plus a fee between 6 per cent and 12.5 per cent (the fee, which is different from an annual percentage rate, fluctuates depending on how the money is spent). Repayment times vary, as they are based on a percentage of sales. Borrowers typically repay the advances in six to 12 months.
Repayment: The funds are repaid by having the business’s payment processor route an agreed-upon percentage of revenues to Clearbanc until the advance and the fee are repaid. The payback rate can range between 1 per cent and 20 per cent of sales.
Speed: While Clearbanc promises you can apply online “in minutes” and money can arrive in as little as 24 hours, typically it takes around a week for businesses to get all set up.
How it works: Applicants give Clearbanc read-only digital access to their business bank account, payment-processing accounts and online ad-spending accounts (typically Google Ads or Facebook). Clearbanc uses that data to assess the business and determine an automated financing offer. The funds are deposited in the company’s bank account or added to a “Clearbanc marketing card.”
What you need to know: Clearbanc is a good option for growing e-commerce businesses because it’s quick, there’s no personal credit check and the entrepreneur doesn’t need to put personal assets on the line or give up equity in the company. The cost is transparent and reasonable when compared with other online lenders. Read more on Clearbanc.
FundThrough, which launched in 2014, offers invoice financing in which business owners receive a cash advance on their invoices.
Eligibility: Anyone who invoices other businesses and waits to get paid can use FundThrough, chief executive Steven Uster says. FundThrough does not check personal credit or require detailed financial information. A business owner uploads their invoice on FundThrough’s online platform and answers basic questions about their business, or they can connect data sources (such as their accounting software) directly to FundThrough. FundThrough approves about 80 per cent of applicants.
Express Invoice Financing: This product is FundThrough’s entry-level option. Businesses can advance invoices up to a funding limit of $50,000. A business owner submits their invoices to FundThrough, receives 100 per cent of the invoice value within 24 to 48 hours and then pays the invoice value back to FundThrough through equal payments over 12 weeks, with a fee of 0.5 per cent of the invoice value added per week, or up to 6 per cent over 12 weeks. Advances are repaid with automatic weekly repayments and there is no penalty for early repayment.
PRO Invoice Factoring: PRO offers borrowers more money at a cheaper rate, compared with the Express Invoice option, but to qualify businesses must sell to “higher quality” customers (typically bigger, established firms). PRO Invoice Factoring allows for an unlimited limit on advancing invoices. Up to 100 per cent of the invoice value is advanced. The interest rate ranges between 1 per cent and 3 per cent each month, and FundThrough says it determines that rate based on the strength of the customer paying the invoice and how long it will take the customer to pay. Using PRO Invoice Factoring, it takes two to three days to receive funds.
What you need to know: FundThrough is an option for business owners with outstanding invoices looking to bridge short term cash flow gaps, but business owners should be aware the cost to borrow is high compared with traditional lenders.
Small business owners can apply online for a line of credit and receive a decision quickly.
Type: Line of credit
Eligibility: Businesses must operate in Canada and have annual gross revenues below $5-million. Accountant-prepared financial statements and personal and business credit checks are required.
Amount: $5,000 to $120,000
Rate and term: There is no set term. The interest rate varies with the prime rate. While HSBC does not publish its rate ranges, it says the average rate is 7.45 per cent (the current prime rate of 3.95 per cent plus 3.5 per cent).
Repayment: Unlike a standard loan, a line of credit only accumulates interest when the money is used. Businesses also pay a $20 monthly fee. There is currently no setup fee in place.
Speed: Business owners upload bank statements and financial statements and complete an online application with 13 steps. An auto-decision feature means in most cases, business owners can hear back in seconds. Some applications require a manual look, in which case a decision takes a few days. Once papers are signed, the new line of credit is available in two business days.
How it works: Business owners apply online and – if approved – receive a line of credit, giving them access to money for their business as they need it. If the business owner is approved and accepts the line of credit, they must sign papers in a branch.
What you need to know: For businesses that receive approval for HSBC eCredit, the product is a good option that allows easy access to money without having to pay a lot for it. Read more on HSBC eCredit.
Founded by former bank executives in 2015, Lendified promises loans of up to $150,000 in as fast as 48 hours.
Eligibility: Incorporated businesses in Canada with at least six months of operation, at least $100,000 in annual revenue and a personal credit score of at least 610.
Amount: $5,000 to $150,000
Rate and term: The loan is for up to 24 months and repayment is made every two weeks. Lendified does not use an annual percentage rate with this product. Borrowers receive an annual interest rate, which Lendified says ranges between 8.99 per cent and 18.99 per cent. Lendified says some businesses with “strong creditworthiness” may be offered lower rates. An origination fee of 3 per cent is also charged.
Repayment: Repayment is made every two weeks. There are no penalties for early repayments if the repayment is from the cash flow of a business, but Lendified says there can be a charge if the repayment is made by refinancing through other financial institutions.
Speed: Borrowers apply online in about 10 minutes, submit six months of bank statements and receive an instant quote. Next, a Lendified representative calls the borrower within one business day and asks further questions. If the borrower is approved and accepts the loan offer, Lendified says funds are usually received in two to four days.
How it works: Borrowers complete an online application, sharing basic information about them, their business and its financial performance. The product works like other term loans, but repayment is made every two weeks, not monthly, and the term tends to be shorter (up to two years).
What you need to know: The cost to borrow is high compared with traditional lenders. Borrowers need to understand what they are signing up for and how an annual interest rate works. With an annual percentage rate, commonly used with loans, each repayment reduces the principal on which the interest is calculated. With an annual interest rate, the repayments do not reduce the principal on which the interest is calculated. Read more on Lendified.
Lending Loop is an online platform that connects small businesses seeking capital with Canadians who want to lend money to small businesses. The company bills itself as Canada’s first fully regulated peer-to-peer lending platform for small businesses.
Eligibility: Businesses must be in operation for one year or longer, have more than $100,000 in annual revenue, be registered as a corporation or partnership, and the owner must have a minimum personal credit score of 600.
Amount: $1,000 to $500,000
Rate and term: Interest rates vary from 6 per cent to 26 per cent a year, based on the risk rating of the business. Businesses also pay an origination fee, added to the value of the loan, that ranges from 3 per cent to 6.5 per cent. Loan terms vary from three months to five years.
Repayment: Business owners make a fixed monthly payment for a predetermined term.
Speed: Lending Loop says it takes five minutes to complete their online loan application. The time it takes to receive the money varies, as each loan gets posted on Lending Loop’s online marketplace, where lenders can invest. The average funding time is eight days. Loans under $50,000 have an average funding time of 3.5 days.
How it works: After completing an online application, approved borrowers get assigned a loan grade and receive a loan offer. If the borrower accepts that offer, the loan gets posted on Lending Loop’s online marketplace for 30 days, with a possible 15-day extension. Once the loan is funded, money is transferred to the bank account of the business.
What you need to know: Lending Loop is best suited for business owners with a good personal credit score and a profitable business with cash flow. The borrowing cost varies based on the risk rating of the business. For some businesses, the rates are reasonable when compared with other online lenders. Read more on Lending Loop.
Merchant Growth, formerly known as Merchant Advance Capital, is a Vancouver-based company that offers small businesses two types of merchant cash-advance products, as well as business lines of credit.
Eligibility: Businesses with minimum average monthly sales of $10,000 and six months of history. Merchant Growth checks personal and business credit ratings and requires business bank statements.
Speed: Same day funding is possible, but on average it takes four days from a completed application to money in the bank.
Flex Solution: As with other merchant cash-advance products, borrowers get capital as an advance and repay it, plus a fee, as a predetermined percentage of daily credit- and debit-card sales, ranging between 4 per cent and 15 per cent. Repayment times vary, as they are based on a percentage of sales. The amount of the advance ranges from $5,000 to $500,000, with the average around $40,000. Merchant Growth says the cost to the borrower is expressed as a factor rate, ranging between 1.13 per cent and 1.28 per cent. Borrowing $100,000 at a factor rate of 1.20 per cent over 12 months, for example, means the borrower will repay $120,000. The factor rate range is lower for a six- or nine-month product and higher for products over 15 months. There is no origination fee.
Fixed Solution: This product, also a merchant cash advance, is set up similarly to Flex Solution, except for how repayment occurs. Instead of repaying the advance through a fixed percentage of credit- and debit-card sales, the borrower repays a fixed daily or weekly amount. Businesses that do not process debit or credit cards are eligible for this product. Unlike Flex Solution, where the term can vary because it is based on sales, there is a set term – typically 12 months.
What you need to know: The cost to borrow is higher than traditional lenders. Borrowers need to understand what they are signing up for and how a daily or weekly repayment will affect their business. Flex Solution can be especially difficult to forecast because the repayment amount fluctuates based on sales. Read more on Merchant Growth.
Global company OnDeck’s Canadian operations combined with Montreal-based Evolocity Financial Group in April. OnDeck Canada offers services in English and French; the company’s main products are term loans and merchant cash advances, called flex funds.
Eligibility: At a minimum, businesses must be six months old and earn revenues between $15,000 and $20,000 a month. Personal and business credit are checked. The application includes sharing basic business information and three months of business bank statements. OnDeck Canada CEO Neil Wechsler says it takes a business owner four to eight minutes to fill out an online application. The company aims for it to take 24 hours from when a business owner applies for money to when they receive it.
Fixed-term loan: The amount ranges from $5,000 to $300,000. The loan is repaid on a daily or weekly basis through a set payment, over a term ranging from six months to 15 months. OnDeck does not use an annual percentage rate with this product. The company says the amount of interest paid ranges from 8 cents to 29 cents on each dollar borrowed, and lower rates may be offered to businesses with “strong creditworthiness.”
Flex Funds: This product is a merchant cash advance, in which borrowers repay the money advanced as a predetermined percentage of their sales, ranging between 1 per cent and 20 per cent. Businesses can be advanced $5,000 to $300,000. The company says its pricing for this product is expressed as a factor rate and ranges between 1.20 and 1.30, meaning a borrower will pay between 20 cents and 30 cents on each dollar borrowed. The loan is repaid on a daily basis as a percentage of sales through debit and credit cards, so the payment amount varies daily and there is no fixed term for repayment.
What you need to know: The cost to borrow is higher than traditional lenders. Borrowers need to understand what they are signing up for and how a daily or weekly repayment will affect their business. The Flex Funds product can be more difficult to forecast, because the repayment amount fluctuates based on sales.
Founded in 2006, Thinking Capital has had different names and offerings over the years. Today, the Montreal-based company, owned by Purpose Financial LP, offers services in English and French. Its most popular product is a term loan, called Fixed Financing. A merchant cash advance, called Flex Financing, and invoice financing are also offered. Thinking Capital also partners with other companies, such as Moneris Solutions Corp. and National Bank of Canada, to offer products.
Eligibility: Thinking Capital requires basic details on the business and its sales volume. A business owner submits information online, which takes about five to 10 minutes, then a Thinking Capital representative calls and collects additional information. Funding is provided in about 24 hours. While a business owner’s personal credit is checked, Thinking Capital says business cash flow and daily transactions play a bigger role in approval than credit score. Thinking Capital typically does not finance a business with less than six months of history.
Fixed Financing: Fixed is a small business loan up to $300,000. The term ranges from six to 12 months, with repayments made daily. Thinking Capital does not use an annual percentage rate with this product. The company says the price to borrow varies depending on the customer, and is expressed as a fee ranging from 8 per cent to 22 per cent of the total borrowed amount annually. Borrowing $100,000 over one year, for example, would cost between $8,000 and $22,000. Thinking Capital also offers “Top-Ups," where business owners can borrow more money once they have repaid 35 per cent, 60 per cent and 90 per cent of their loan, as well as “Coverage Payments," where deposits are made on select holidays.
Flex Financing: Flex is a merchant cash advance, in which borrowers repay the money advanced as a predetermined percentage of their daily sales. Businesses can receive up to $300,000. Thinking Capital says the price to borrow typically ranges between 12 and 28 per cent of the total borrowed amount. The predetermined percentage of daily sales (withheld to repay the loan) varies between 4 and 18 per cent.
What you need to know: The cost to borrow is high compared with traditional lenders. Borrowers need to understand what they are signing up for and how daily repayment will affect their business. The flex product can be more difficult to forecast, because the repayment amount fluctuates based on sales. As well, businesses need to fully understand additional features, such as “Top-Ups” and “Coverage Payments," and how they will affect their business. Read more on Thinking Capital.