Canadian businesses have access to various business loan products that may be either secured or unsecured and are typically secured against assets like equipment or commercial real estate.
Different business loans come with their own eligibility requirements and repayment terms, so let’s explore some of the most frequently used loan products:
Invoice Financing
Invoice financing Ñ–s a type оf business loan that offers immediate working capital tо small businesses Ñ–n need. Similar tо factoring and accounts receivable loans, Ñ–t uses unpaid invoices as collateral tо secure cash. However, unlike traditional business loans for women оr other forms оf financing, invoice financing doesn’t rely оn a company’s creditworthiness but rather оn the creditworthiness оf its customers and the quality оf its invoices. This makes Ñ–t a more accessible option for young and growing businesses, including those owned by women, who may not have established credit histories.
Merchant Cash Advance
Merchant cash advances (MCAs), also known as business financing solutions that quickly provide access to working capital for companies. A merchant cash advance provider advances a lump sum against future credit and debit card sales and then deducts it daily or weekly from your company bank account until it has been fully repaid back.
MCAs can be beneficial to small businesses that do not meet the qualifications for traditional business loans or who wish to bypass the lengthy application and approval processes involved with these loans. Furthermore, MCA providers usually do not adhere to stringent regulatory requirements, making funding often available within days after an application.
Though MCAs may appear like an attractive alternative to traditional loans, they come with certain costs that should not be underestimated. Most significantly, as MCAs rely on future sales projections rather than fixed payments like other forms of finance do, requiring higher payment thresholds than other financing solutions and not reporting repayment history to business credit bureaus – meaning MCAs won’t help any businesses build creditworthiness.
Similar to an MCA, business lines of credit provide businesses with a maximum credit limit they can draw from at any time. Lenders will typically set this credit limit according to profitability and financial status of the business; lending institutions often base it off of this criteria when setting it. A line of credit is an ideal solution for small businesses in need of flexible working capital solutions, and lenders such as banks, online lenders or merchant cash advance providers provide such financing products.
Business Line of Credit
Business lines of credit enable businesses to draw funds continuously over an extended period, paying only interest on what was borrowed. Lenders usually assess a business’s finances, profits and revenues prior to providing this form of financing – often demanding two years worth of financial statements and income tax returns in order to determine its eligibility for such financial solutions.
Business lines of credit provide companies that need access to short-term funding on an ongoing basis with short loan terms and rates that meet their business needs. They can use this financing method for day-to-day operations, inventory purchases, payroll expenses and more. In some instances, lenders may even provide secured lines of credit backed by collateral such as cash investments or real estate that lower risk by offering lower risk loan terms and rates for your company.
Unsecured lines of credit are more prevalent, but lenders who provide business lines without collateral may require the borrower to sign a personal guarantee and pledge some or all assets as security in case the debt goes unrepaid. A personal FICO score also plays a part in assessing borrower creditworthiness; either way, it’s essential that borrowers closely track spending and repayment obligations so as not to exceed borrowing thresholds and hinder future funding efforts.
Short-Term Loans
Short-term loans are the go-to solution for business financing, offering fast funds to address cash flow challenges or take advantage of profitable opportunities. Available from traditional banks, nonbank finance entities and business credit companies alike, short-term loans have an easy application process and typically less stringent requirements compared to long-term loans – no credit checks necessary!
However, these loans often require repayment on either a weekly or monthly basis depending on your lender and type of loan. Therefore, they should only be utilized if you can comfortably afford the payments; otherwise you could find yourself trapped in an endless cycle of debt payments that cause other bills to become late and threatens its ability to pay back the loan itself.
Short-term loans typically carry higher interest rates than long-term loans to offset any risks associated with providing financing to businesses with poor or marginal credit, making qualifying more challenging. Therefore, it’s essential that business owners shop around and find lenders offering short-term loans at reasonable rates so their company can obtain funds without overpaying in the long run.
Also Read: What Are the Key Differences Between EIN Loans and Personal Guarantee Loans?
