This article is part of The Globe and Mail’s Small Business Borrowing Guide series, which will run weekly on The Globe’s Entrepreneurship page until November.
Online small-business loans are nothing new at the Business Development Bank of Canada. BDC, wholly owned by the Government of Canada and devoted exclusively to entrepreneurs, has been offering the service since 2015.
“We know that easy and convenient access to financing has always been a pain point, and it remains a pain point, for entrepreneurs,” says Annie Marsolais, chief marketing officer for BDC.
Of the approximately 10,000 to 12,000 online applications the Crown corporation receives annually for its small-business loans, Ms. Marsolais says between 5,000 and 6,000 are approved.
After a completed application is submitted, it usually takes one to five business days for BDC to process the application and give approval. If approved, it takes from four to 48 hours to receive the money.
Prior to the online system, Ms. Marsolais says the same process used to take up to 25 business days. For business owners applying in person, account managers now have iPads with BDC’s Express Loan app, which has faster turnaround times. Using the app, Ms. Marsolais says entrepreneurs can get a loan within minutes.
Does BDC’s online small-business loan live up to its claims? The Globe and Mail spoke to entrepreneur Michael Apollo about his experience using the product.
Canadian-based businesses that have been generating revenues for at least two years are eligible for BDC’s online small-business loan. In addition to interest, there is an annual loan management fee of $150.
A good credit history is required; Ms. Marsolais says personal and business credit history are considered, and BDC uses its own credit-score models.
The five-year loan is offered for a total commitment of up to $100,000; any existing BDC loans are subtracted from this total. A personal guarantee is required, meaning if the business defaults on the loan, the lender can go after the business owner’s personal assets.
Mr. Apollo first used BDC’s online system to apply for a loan two years ago. His company, Mindful Gateway Consulting, offers mindfulness learning and development for corporations and plays host to an annual mindfulness conference in Toronto.
Facing payroll for 10 employees plus additional consultants and trainers, coupled with delayed accounts receivables, Mr. Apollo applied for a $100,000 loan to help with cash flow.
Mr. Apollo found BDC’s online application “very easy” to fill out. The online application contains questions on the business and the specific project that necessitates the loan, as well as shareholder information.
“Just like in any application, you just need to make sure you have all your proper accounting and financial statements, and that makes life easier,” Mr. Apollo says.
Within 24 hours of submitting the application, BDC says a bank employee contacts the business owner if any additional information is required.
“The representatives were very responsive and guided me along in the process very clearly and skillfully,” Mr. Apollo says. In total, he says it took about 10 business days in total from applying to when the money was in Mindful Gateway’s bank account.
The loan is offered at a floating base rate (meaning the interest rate varies over the term of the loan) of 6.05 per cent plus an additional interest charge ranging between 1 per cent and 12 per cent, depending on BDC’s evaluation of the risk. The term is five years, but there are no penalties for early or lump-sum repayments.
Business owners can also 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.
After paying his loan back in one year, Mr. Apollo recently applied for a second loan with BDC. “It was even easier because all my information was already in the system,” he says. He received $84,620 within a week and a half, and his total interest rate decreased from 10.81 per cent to 8.05 per cent.
The bottom line
BDC’s online small-business loan is a good option for businesses that are not approved by the big banks. While BDC’s rates are not as low as the big banks, they are better than many other lenders.
Many banks lend based on the assets of a business, but BDC considers cash flow. This difference means it can be easier for some businesses to get approval from BDC. However, the required good credit history can still be an obstacle to some.
For Mr. Apollo, he describes his experience with BDC’s online small-business loan as “very smooth” and says there have been no surprises along the way for him.