Thursday, 31st October 2019 | Small business financing Canada,Business loans for bad credit
What to do if a bank won't give you a business loan
It’s the nature of business to need funding on occasion, but what if the bank won’t approve you, or you don’t have time to go through their cumbersome application process? This is why private lenders are a go-to for Canadian small businesses.
It’s the nature of business to need funding on occasion. Renovations, new hires, inventory purchases, and slow days can send business owners in search of a loan. But what if the bank won’t approve you, or you don’t have time to go through their cumbersome application process? Suddenly, “business as usual” is a much bigger, more stressful problem. This is why private lenders are a go-to for Canadian small businesses—they present fewer hurdles and get money into your hands faster.
Private lenders vs banks
When considering lenders, it’s a mistake to think of banks and nobody else. While banks enjoy name recognition and a reputation for longevity, there are other, modern options. Private lenders like iCapital are an excellent alternative for small business owners, in many cases exceeding what’s on offer from the big banks.
Banks tend to be extremely risk-averse, even refusing to loan to businesses in riskier sectors like restaurants and retail. And, even if they will consider your company, their application processes are onerous and slow, causing an additional time burden while you wait for an answer. Private lenders like iCapital operate very differently. Using a simple, less restrictive, online application, we strive to make the process easy and fast. Applicants can expect their approval within 24 hours and funding the day after. And, private lenders’ standards are less strict and more inclusive, so we lend to more businesses—even people with low credit scores.
What are the different types of business financing?
If you’re approaching a private bank for a business loan, the first decision you’ll want to make is what kind of funding product is best for you and your situation. The three most common funding options are:
- Merchant cash advance - Companies that do a lot of debit or credit transactions might benefit from this kind of lending option because repayment is on a percentage of the day's sales. If your business has a quiet day (or even season), you won’t be stuck trying to come up with repayment while you have no money coming in.
- Term loan - This is a very standard kind of loan where you receive a certain amount of funding and repay a set amount on a set schedule until your loan is discharged. This works well for those who want to know exactly how much they owe and when payments are due.
- Secured loan - With the pledge of an asset, you can take out a secured loan. In general, you can get a better rate with a secured loan, but unsecured loans can be the way to go for small amounts as they are uncomplicated to negotiate. Your decision between secured or unsecured funds will depend on your specific situation.
Taking out a loan shouldn’t be a job in and of itself. If a bank turns you down, or if you need money quickly, consider a private lender. Their faster, simpler application process means you can put your energy where it belongs—back into your business.
Read Also
Tips for keeping your inventory secured and your brand trustworthy
Tips for keeping your inventory secured and your brand trustworthy
Inventory management, the practice of having the right–and right amount–of products for sale, isn’t the sexiest part of running a small business but it is crucial. Failure to stay on top of your inventory can cost your company time and money, but even more worryingly, it can destroy your reputation with your customers. Like supply chain management in general, inventory management is largely a matter of planning and organization. Read on for top tips on how to make sure you don’t have to tell your customers you’re sold out.
What is inventory management?
Your job as a small business owner is to meet the demand of your customers by supplying them with the products they want, when they want. It sounds simple enough, but businesses can’t just order as much as possible. There are costs associated with carrying excess inventory, and you can lose money if you have to sell off product at deep discounts. Foreseeing customer taste and demand is a key component of inventory management, and when done correctly, it will boost your business and help foster customer loyalty.
Why is inventory management important to your business?
According to Software Path, only about 18% of small businesses use an inventory tool, and nearly half–43%--either don’t track inventory at all or they do so manually. This means that these businesses are making stocking decisions without the pertinent data. This can lead to having too much or too little stock, cash flow problems, and a disorganized budget. By regularly surveying your inventory, you can make informed business decisions to ensure you’ll continue to profit.
Additionally (and importantly), a well-managed inventory will help ensure that you have the stock your customers want, when they want it. This directly affects sales, but it also demonstrates good business practices to your customers.
Top 4 inventory management tips for your business
Stay informed and be strategic
Prioritize taking stock of your…stock. Regularly assessing your inventory will enable you to make informed decisions about how much product you need–and how much you might need in the future. Include inventory management in your everyday operations to take the guesswork out of ordering.
Listen to your customers
If you and your staff aren’t paying attention to your customers’ requests, you’re leaving money on the table. Train your staff to note what your customers are asking for and to take these requests to management. Analyze your competition and see what they’re carrying. Be proactive in researching and analyzing the best products on the market.
Observe and anticipate seasonal trends
Every business experiences ebbs and flows and your ordering behaviour should reflect that. Document sales data over time so you can predict peaks and valleys, and secure inventory accordingly.
Use promotions strategically
Even the most well-managed businesses end up with overstock from time to time. If you’ve got product you need to move, you can set up a promotion to entice buyers. Be strategic about the deals you're offering. Too deep a discount can lose you money so aim for the highest sale price that will move your product.
If you want to compete in your marketplace, inventory management is key. By prioritizing regular assessments you can track your expenditures, purchase strategically, and keep your customers happy.
Management
How small business owners can protect themselves against rising inflation
How small business owners can protect themselves against rising inflation
Inflation describes an increase in the cost of consumer goods and services. It’s a simple concept with complex causes but it’s certain that the COVID-19 pandemic has played a significant role in the spiking costs faced by Canadians. In January 2022, the inflation rate was a little over 5% compared to the previous year for consumers, with many businesses experiencing even higher increases. For Canada’s SMBs, this means rising prices and tighter profit margins.
If your business has yet to suffer the effects of inflation, it’s likely only a matter of time. Although costs don’t always rise at the notable levels we’ve seen this past year, inflation is an ongoing process so your best bet is to be proactive.
Inflation management strategies for your small business
Focus on growth
In dealing with rising prices and shrinking profit margins, small businesses will have to choose between severe austerity or a growth mindset. In the former strategy, you cut all but the absolutely essential expenses and try to hang on until things improve. (Spoiler: inflation is continuous.) The problem with this strategy is that you won’t be in a position to invest in your business so the likelihood of it surviving is painfully low.
Rather than trying to wait things out, focus instead on growth. Review your profit margins regularly and no less frequently than quarterly to make sure you can adjust to maintain your cash flow. This will help you maintain some certainty even while the markets fluctuate. By moving forward with a plan, you may well be giving yourself a better chance at success in both the short- and longer-term.
Review your gross profit margins
Setting your prices to match inflation rates is inefficient and can alienate your customers. Instead of posting fluctuating prices, build some room for adjustment into your everyday rates so you can be nimble in the face of instability without blowing your margins.
Look for savings
A growth mindset doesn’t preempt smart financial decision-making. Look at your indirect costs to see if there are places you can cut unnecessary expenses. Review your overhead expenses, software and media subscriptions, administration costs, and other operational items. Consider automation where you can. It streamlines processes, reduces errors, and can save you time and money.
Be smart about borrowing
Borrowing can be a sound choice, provided it's done at the right time and the right terms. If you foresee running up against cash flow issues, don’t hesitate. Borrow the money you need to keep operating. There are online tools to help you predict trends so aim to borrow at favourable rates. You can select a fixed rate loan to protect your repayment terms. Similarly, consider moving high-interest credit card debt to loans with lower rates.
Current inflation rates are a concern for Canadian small business owners but there are strategies to maintain operations. The tips above will not only help you weather this storm, but will also help you prepare for the next.
Accounting ,Management
Can I get a business loan to buy a business?
Why purchasing a small business in Canada could be beneficial
Purchasing a business in Canada might be a cost-effective strategy to grow your customer base, expand your capacity, or enter new markets. You may even buy a competitor's or supplier's company.
Purchasing an existing firm has several advantages
There are many advantages to buying a business or an established firm. For example, the product or service that the company provides is already well-positioned in the market, the personnel is well-trained, and the supplier network and distribution channels are well-established.
However, if you are purchasing a failing firm, you must first obtain a thorough grasp of the reasons for the failure and then carefully examine if you have what it takes to turn things around.
The maximum amount of money you may borrow to acquire a business
The amount of money a lender is willing to provide for a business acquisition loan varies significantly from one company to the next. The value of the assets you're using as collateral, your cash flow, your credit score, and your firm's financial health are all factors that influence loan amounts. Depending on these characteristics, lenders may provide as little as $250,000 or as much as $35 million.
The lengths of company purchase loans in Canada vary, although they commonly range from three to 10 years.
Financial options when buying a business
There are various methods for getting a loan to buy a business in Canada, so you need to weigh all of your options before deciding on the best financing arrangement.
Self-funding
It is the shortest method since you fund the transaction with your own money. However, in many circumstances, this cash isn't available or isn't available in significant amounts, so you'll need to look into alternative financing possibilities. Read on for a list of options.
Financing from the seller
Some business owners selling their companies are prepared to lend money to potential purchasers. When this occurs, it typically indicates that the seller believes in the business or the buyer's ability to operate the firm successfully after purchase. However, it might also suggest a restricted market for the firm being sold, and the seller is attempting to entice possible purchasers. As a result, you should think about the reasoning behind the seller's decision to finance, as it may affect your negotiating position.
In most cases, seller financing does not cover the entire purchase price. Therefore, you will need to make a down payment as a buyer. However, you can cover the down payment with a secondary funding source, such as one of the other choices indicated in our article. There are no particular qualifications for seller financing because each seller will have their own set of requirements. Some will want to see a decent credit score, although you do not have to be a top borrower.
Getting a bank loan
Banks are typically hesitant to provide money for business purchases. However, you may want to consider this option which allows you to get a small business loan in Canada for various purposes, including acquiring an existing firm. You might also want to look into the Business Development Bank of Canada, which has several long-term funding alternatives based on your circumstances. Financing options specifically designed for the purchase of a business include vendor take-back financing; unsecured loans for intangible assets such as intellectual property, goodwill, and client lists; long-term loans based on the value of fixed assets such as land, buildings, equipment, or shares in an existing business.
Buyout with leverage
The firm's assets you're buying (equipment, property, or inventory) are used to fund the acquisition in this financing arrangement. A mix of seller finance and a bank loan is used in most leveraged buyouts. It is highly typical, as business purchases frequently include various financial sources.
Online Lenders
iCapital is one of the most trusted online lenders in Canada offering loans to businesses. You can qualify for up to $250,000 with iCapital in as little as 48 hours. Our application process is fairly straightforward and loan approval is as high as 98%. Connect with us to discuss your financial plans and needs and we will work out the best strategy for you.
Things to consider when buying a business
- Debt assumption: When purchasing a firm, you must decide whether you want to acquire the assets or the entire company, including assets and liabilities (debt).
- Purchase financing: When buying a firm, keep in mind the finances you'll need to manage once you've bought it. After making your purchase, you'll have several financing choices for getting a business loan.
- Self-funding and cash reserve: In an ideal world, a company's activities would be financed by its cash reserves once it is purchased. However, you may need to bring in more money if they aren't adequate.
- Line of credit: When your company has a business line of credit, you may borrow up to a particular amount and pay interest on the amount you borrowed. A line of credit is helpful since it provides your firm with rapid access to cash, up to a pre-determined credit limit, similar to business credit cards.
- Financing for invoices: Invoice financing refers to financial agreements that enable you to finance your company's invoice receivables. Small firms utilize it to boost their working capital and cash flow by fulfilling short-term liquidity demands. Invoice discounting and factoring are the two most popular options.
Why iCapital?
A loan can be used to purchase a firm from an existing owner in Canada. You can use various financing options to finance the purchase. You should evaluate which funding option will work best for you and then decide whether you should invest in the purchase.
Are you interested in learning more about this? Contact iCapital at 1.877.251.7171 to get a loan to buy a business using our straightforward procedures.
Small business financing Canada ,Management
How large of a business loan can I afford?
When researching small business loans, there are a couple of things to consider. First and foremost, you must evaluate whether or not taking on debt is the best course of action for your company. For example, your company could require extra funding to alleviate the stress of a looming financial constraint during the slow season or fund a new, exciting business prospect.
The second step, which many ambitious business owners overlook, is one of the most crucial aspects of the business loans application process: determining whether or not you can genuinely afford to take out business loans in Canada.
How can entrepreneurs seeking company capital be sure they can afford to take out a small business loan and repay it on time with extra interest? Here's how to figure out if you'll be able to repay your small business loan.
Identifying what your company can afford
Suppose you're just getting started looking for business loans in Canada. In that case, you should figure out what type of monthly payments and interest rates your company can afford before diving into the process. Calculate your debt service coverage ratio to understand what you can afford when a loan is offered.
What is the maximum amount you may borrow for a business loan?
Business loans in Canada can be anywhere from $5,000 to $500,000. With iCapital, you may qualify for up to $250,000 in 48 hours with our 98% application approval rate. Personal factors like credit score, debt-to-income ratio, and business revenue influence the amount you may borrow.
If you have a well-established business, a good credit rating, and a reasonable sum of excess income, you'll be able to borrow more money. On the other hand, if you're just starting out or have a bad credit history, you'll be able to borrow less or may not qualify at all.
How do lenders determine the loan amount?
Across the board, lenders give the most significant loan amounts to the borrowers they believe are the best qualified—in other words, the borrowers that they think will be able to repay these big loans in full and on time. All lenders want to make sure they're dealing with responsible borrowers to avoid losing money.
Banks aren't entirely stranded if borrowers default on their loans because of collateral. Any item that the borrower puts up for the lender to seize if the borrower fails on their loans—such as automobiles, equipment, real estate, accounts receivable, or cash—is considered collateral. In such an instance, the lender will attempt to collect and dispose of those assets to reclaim as much of the loan as possible.
Other forms of collateral include blanket liens, which allow the lender to claim any tangible or intangible asset owned by the borrower, and also personal guarantees. Although most internet loans do not demand collateral, most of them do require a personal guarantee. If the business cannot pay for any reason, you must agree to repay the loan from your assets. Lenders make every effort to reduce risk. But how can banks know if a borrower is trustworthy enough to manage the most significant loan amounts? They'll look at all areas of a potential borrower's business loan application to figure that out.
Business loan application
Your company loan application may be comprised of the following items, depending on the lending institution and the type of business loan you're applying for:
- Business loan request letter
- Bank statements
- Personal and business tax returns
- Profit & loss statements
- Balance sheets
- Your income
- Personal credit score
- Business credit score
- Annual revenue
- Time in business
- Business plan
- Industry type
Banks require all of the information shown above. Banks use this information to calculate your DSCR (debt service coverage ratio), personal creditworthiness, profitability, etc. These numbers give the lender a comprehensive picture of your company's financial health. The bank will use this information to determine the amount of money it will loan your business.
Ways to qualify for more funds
Here are a few methods to qualify for a higher loan—from preparing for government-backed financing to make a significant down payment:
- Collateralize the situation: If you put up collateral to ensure your payments, you'll be able to acquire a bigger loan. Your home, automobile, or company equipment are all examples of assets.
- Don't forget to make a down payment: If your lender sees that you have the capacity to save money and commit to your business, you may be able to borrow more with a higher down payment.
- Pay debts first: If you enter your loan arrangement with a lesser amount of previous personal and commercial debt, you may be able to borrow more money.
- Boost your credit rating. The higher your credit score, the less of a perceived risk you are to the lender, and the more money they may be willing to lend you.
- Wait till your company is more established before making a decision: Once your firm has been active for a time, and your income has increased, you may be eligible for extra money.
Apply for a business loan with iCapital
The amount offered by business lenders and the amount you can borrow is two separate figures. However, to prevent taking on more debt than required, you should concentrate on how much you truly need to borrow for your business.
With iCapital's complete guide to business loans, you can borrow the right amount of money and gain access to it fairly quickly through an easy application process. Contact iCapital at 1.877.251.7171 to apply for a business loan and get the funds you need in 48 hours.
Small business financing Canada ,Management