You need money to make money. There’s (almost) no way around it. Whether you are developing a new product, rapidly growing your business or want to start a marketing campaign, there are many reasons you may need to get a small business loan online.
In today’s world, it’s very easy to start your small business loan application online. Indeed, you could be on your way for the small business financing you need in just a few clicks. In this article, we’ll guide you through everything you need to know before investing your valuable time in a small business loan application.
What is a small business loan?
Small business loans are various types of business financing provided to companies by a lender, whether it’s a bank, a broker, or a private lending company. Depending on the type of business financing and conditions, the money can be tied to a specific project, for business development, or for literally anything you want.
The way small business financing works vary greatly from one type to another. That why you need to make sure you know the differences before starting your application.
Types of small business loans and financing options
There are a lot of options when it comes to business financing. In this article, we focus on four of the most popular types.
Fixed financing with a small business loan
It’s one of the most common type of financing as it’s very similar to a personal business loan. With a small business loan online, you get a lump sum of money that you pay back with fixed weekly/bi-weekly/monthly payments.
In most cases, you repay these loans over a period of two to five years, and you have to use it for a specific investment in your small business.
Pros:
- Large amount of money: You can access a large sum of money, sometimes a few millions.
- Fixed repayment: You payback a fixed amount of money, so you know exactly how much you’re going to pay every month, for the entire period.
- Fast funding: The application process for a small business loan online is extremely fast. You can have access to the funds in just a few days.
Cons:
- Not flexible: Once repayment start, you have to reimburse the totality of your monthly payment, every month, no matter how things are going.
- Good credit score: More often than not, a good credit score is required to get approved for a small business loan.
Small business line of credit
A business line of credit is a flexible reserve of cash that you can use whenever you need it. After you got approved for a credit limit, you are free to use the money however you want. That means you can split payments, or use all your credit limit at once if necessary.
It gives a lot of flexibility to business owners as you are only charged on the money you actually use. And if you repay in time, a business line of credit can be an extremely cost effective business financing.
Pros:
- Flexible financing: You can use the money whenever you need it, and you only repay what you take.
- Only pay what you use: You get charged only on the amount you use, making it a cost efficient options for businesses.
- Revolving: You can use it again once you’ve repaid the total amount used.
- Ideal for recurring costs: Because you only pay what you use, it’s a convenient financing option for recurring costs.
Cons:
- Lower limit: The amount of cash you can borrow is lower than a small business loan.
- Room for misuse: It’s important to keep track of your payments and the amount you already used. Temptation is real.
- Longer approval time: If you decide to go with traditional banks, you’ll need to provide comprehensive information about your business. As a result, it increases the review process time, and makes it harder to get approved.
Merchant cash advance
In just a few words, a merchant cash advance is a sale of a percentage of your future sales. In other words, you receive a one-time sum of money that you repay with a fixed percentage of your daily sales.
Because it’s a fixed percentage and not a fixed dollar amount, you pay back at your own pace. For example, you will pay back your merchant cash advance faster during high season, but you won’t be overwhelmed during quieter months.
We dive into deeper details in our article how does business cash advance work. We even add examples so you know exactly what to expect when it comes to paying back your merchant cash advance.
Pros:
- Flexible repayment: daily payback is a percentage of your sales
- Pay at your own pace: You pay faster with high volume of credit card sales and slower during quieter months
- Qualify even with bad credit: because it’s repayment is linked to your sales, your monthly revenue matters more than your credit score
- No collateral: you can invest cash in your business without the fear of losing everything
Cons:
- Short-term financing: while it can be a valuable resource, some companies are looking for long-term financial support
- Based on your revenue: the total amount of cash you will receive will be calculated based on your monthly revenue. While for most business this will no be an issue, some business won’t be able to access large amount of money
Bad credit business loan
A bad credit score can be the result of so many things. Unfortunately, credit score plays a major role in business loan approval. However, solutions exist for company that struggle with bad credit score.
A bad credit business loan is an unsecured business loan that offers quick approval and easy access to funds. So, you can still invest in your company, even with poor credit.
Pros:
- Financing with bad credit: you can get approved for the financing you need, even with bad credit
- No collateral: even though some lenders may require collateral for bad credit loan, it’s not always the case
- Fast funding: you get the funds on your business bank account in just a few days after being approved
Cons:
- Interest rates: some lenders may apply higher interest rates if you have bad credit
- Fixed repayment: make sure you can afford repayment for the entire duration of the loan to not deteriorate your credit score even more
What you need to know before applying for a small business loan in Canada
Now that you know some of the business financing options available to you, there are a few other thing you need to identify before starting your free application.
When to get a business loan
It’s important to know what you want to do with the funds before you apply for small business loan online. There are many reliable ways to make the most of your money, but in this article, we’ll focus on three events when it’s a good idea to invest your small business loan.
Small business loan to buy equipment
No matter what business you’re in, buying equipment can be extremely expensive. From buying computers, to high end kitchen appliances, you will need a lot of capital to fulfill your projects. In that case, a small business loan or a merchant cash advance is an ideal solution.
Small business loan to buy property
After a few years, chances are you will want to expand by either moving to another address or opening a new location. But whether you decide to rent or buy a new property, the investment is huge. That’s when a small business loan can help you push your business to the next level.
Merchant cash advance to support your marketing effort
Investing in marketing is a reliable way to grow your business. You can easily track the money you invest, and calculate your ROI. As a result, you know exactly how much money you make for every dollar spent. Besides, because you repay your merchant cash advance with a percentage of your sales, it’s an ideal way to finance your marketing activities.
Do you qualify for small business financing?
Even though banks, as well as other lending companies, have different requirements, there are a few things you need to check.
Consider your credit score
No matter what we want to think, credit score will always be the main decision maker. It will determine what kind of business financing you can access, and/or the amount you will be able to receive. While business owners with good credit score will have more opportunities, you can still access capital with a bad credit score. In fact, some business financing, such as merchant cash advances give little to no importance to your credit score.
Years in business
Some lenders will check how many years you’ve been in business before lending any money. It’s important that you check the banks or broker’s requirements before you apply. While some companies will gratefully offer business financing to start-ups, some other will only lend money to already established Canadian businesses.
Your annual sales
No matter what kind of business financing you apply for, lending companies will take a look at your sales. It gives them an idea of your company’s activity, and evaluate the risk for the lender. Besides, for some business financing, such as merchant cash advance, your monthly sales are used to determine to total amount of cash you can borrow.
How to apply for small business financing at Just Capital
You can apply for small business financing at Just Capital with three simple steps. But before you start your application, make sure that you meet all our requirements:
- You generate at least $10,000/month in revenue
- Your company has been in business for at least 2 years
Now that you’re all set up, check out our simple three steps application process:
- Fill out the application form
- We’ll contact you to send your documents
- Get your funds
