5 Reasons Why Successful Businesses Also Borrow Money

A small business owner walking into a bank branch today faces a different conversation than the one their parents had ten years ago. Higher borrowing costs have changed how banks price risk, how much collateral they demand, and how quickly they say no. For owners who need capital to make payroll, restock inventory, or replace a piece of equipment that just quit on them, that shift matters more than any headline number on a rate announcement.

The Bank of Canada's Rate Path and What It Did to Lending

When the Bank of Canada raised its policy rate aggressively starting in 2022, the intent was to cool inflation. It worked, but it also raised the cost of every variable rate loan, line of credit, and floating mortgage tied to prime. Banks didn't just pass along higher rates. They also tightened who qualifies for credit in the first place, because higher rates raise the odds of default across their loan books, and lenders respond to that risk by pulling back.

According to the Bank of Canada, cited in ISED's biannual survey analysis, borrowers themselves reported a tightening in overall business lending conditions, a signal that came directly from the Senior Loan Officer Survey rather than from lenders describing their own policies. That distinction matters. It means the businesses on the receiving end of these decisions noticed the change before it showed up in any official policy statement.

Fewer Businesses Are Even Bothering to Ask

One of the more telling shifts isn't in approval rates. It's in how many owners apply for debt financing at all. According to ISED, debt financing requests from small businesses fell to their lowest share since 2009 in 2024. That's not a sign that businesses stopped needing capital. It's a sign that more owners looked at bank criteria, decided they wouldn't qualify or couldn't stomach the terms, and didn't bother filing an application that would just get declined.

That quiet withdrawal from traditional lending channels is where alternative financing has stepped in.

‍

‍

Why Banks Have Gotten Harder to Work With

Traditional lenders operate on thin margins and heavy regulatory oversight. When rates rise, three things happen inside a bank's underwriting process that owners rarely see directly.

First, debt service coverage requirements get stricter. A business that could comfortably cover its loan payments at a five percent rate might not clear the bar at eight percent, even if revenue hasn't changed at all. Second, banks lean harder on personal guarantees, collateral, and time in business, which locks out newer companies and anyone without significant fixed assets. Third, approval timelines stretch out, sometimes to six or eight weeks, because underwriters are doing more manual review on files that would have sailed through a few years ago.

None of this means banks are wrong to tighten up. It means the businesses that most need fast capital, seasonal operators, contractors waiting on invoices, retailers restocking ahead of a busy season, are the ones least equipped to survive a slow, restrictive process.

Where Owners Are Turning Instead

Alternative lending exists because it solves a timing problem banks are structurally bad at solving. A merchant cash advance, for instance, is underwritten against a business's actual sales history rather than a credit score alone, which means approval can happen in days instead of weeks. For businesses with inconsistent monthly revenue, that structure often fits the real cash flow pattern of the business better than a fixed loan payment does.

This shows up clearly in specific sectors. Restaurants running on tight margins can't wait two months for a bank decision when a walk-in cooler dies in July. Construction and trade businesses face a similar mismatch, since they're often paid on net-30 or net-60 terms while still needing to cover payroll and materials in real time.

Retailers face their own version of the problem heading into peak seasons, when inventory has to be purchased well before it turns into revenue. Waiting on a bank line of credit renewal during that window can mean missing the season entirely.

Credit History Isn't the Dealbreaker It Used To Be

Banks weight personal and business credit scores heavily, and a few rough years, common for anyone who ran a business through 2020 and the years that followed, can shut the door on conventional financing for good. Alternative lenders generally look at current business performance instead of past credit events. If bad credit has been an issue, that doesn't have to be the end of the conversation the way it often is at a branch.

Fast Business Funding as a Strategic Tool, Not a Last Resort

There's a persistent myth that alternative financing is what businesses turn to when they've been rejected everywhere else. That's outdated. Owners increasingly choose fast business funding deliberately, because speed itself has value. A contractor who can jump on a bulk materials discount, or a retailer who can restock a bestseller before a competitor does, is using capital as a competitive weapon, not a rescue line.

Small business loans through traditional channels still make sense for long-term, predictable financing needs, equipment with a long useful life, real estate, expansion with a clear payback horizon. But for working capital, bridging receivables, or reacting to an opportunity that won't wait for a loan committee, alternative structures like a merchant cash advance are frequently the better fit regardless of what a business's credit profile looks like.

Rates will eventually come down from where they've been, but the underwriting discipline banks have built during this tightening cycle isn't likely to disappear overnight. Lenders that got burned by looser standards in the past don't unwind those lessons quickly. Owners who build a relationship with alternative funding sources now, before they're in a cash crunch, put themselves in a stronger position regardless of where the next rate decision lands.

The businesses that come out ahead in this environment aren't necessarily the ones with the best credit scores. They're the ones that understand which type of capital fits which type of need, and who don't wait until a bank says no to look at their other options.

Talk To Us

If bank timelines and tightening criteria are getting in the way of decisions your business needs to make now, don’t hesitate to contact us. We work with Canadian small businesses across restaurants, construction, trucking, and retail to structure funding that matches how your revenue actually moves.

‍

If you are looking to grow your business, then you may find it challenging if you have poor credit. However, there are a number of options that can help your business get the financing with poor credit. Here’s a look at the steps you can take to secure fencing for your business with poor credit.

1) Check your credit score

The first thing that you should do is know your credit score. If your credit score is below 700, then your credit will be considered subprime. Also, this can prevent you from the top business financing options. You can credit your credit score for free on Credit Karma. You can also request one credit report, per year, from the two major credit reporting agencies.

• Experian to include a different link https://www.transunion.ca/
• Equifax - to include a different link https://www.consumer.equifax.ca/

2) Know your options

Once you know your credit score, then you can explore your options. In fact, if you have a low credit score, then you will want to consider the following types of financing options:

• Business credit cards - There are a number of business credit cards that allow customers with subprime credit scores. While these credit cards may have higher interest rates, they will allow your business to get the quick funding that you need.
• Merchant cash advance - A merchant cash advance is an advance based on the credit card sales deposited into your business’s bank accounts. In short, a merchant cash advance can help you get access to your money faster for a small fee. Many businesses used merchant cash advance to gain faster cash flow.
• Short-term line of credit - A short-term line of credit allows you to draw from a pool of funds. When you pay back the loan with interest, then you can draw from the line of credit again.

3) Create a business plan

If you are looking to secure a short-term business loan, it is a good idea to have a business plan. After all, the bank will want to know what type of business that you are in and how you intend to generate revenue. A well-organized business plan will increase your chances of being approved for a short-term business loan.

4) Have collateral

If you have any form of collateral, then you can secure a loan much more easily. Here are some types of collateral that can allow you to get the funds that your business needs:

• Vehicle
• Property
• Inventory
• Unpaid invoices
• Cash

5) Find a co-singer

Finally, you can find a co-signer that can help you secure a loan or financing with poor credit. A co-signer can be anyone from a member of the family to a business partner. The co-signer should be aware that they are liable for the loan if you don’t pay back the principal or the interest.

Getting your business up and running

Bad credit doesn’t have to stop you from funding your business. At 2M7 Financial Solutions, we do not require a credit score to issue a merchant cash advance. Apply now to get a merchant cash advance today.

Managing a small business is challenging. One of the common challenges for business owners is financing. Your company might not have a lengthy credit history or collateral to apply for a bank loan. Whether you want to grow your business or cover unforeseen expenses, you have come across other financing options. Merchant cash advance and cheques factoring are some of the available options for small businesses.

What Is Merchant Cash Advance?

A merchant cash advance is an alternative financing option for small businesses. You can take the funds upfront and pay them off with a percentage of future sales. The MCA is an ideal solution for businesses that need fast funding and might not be eligible to take a bank loan. The availability of funds is another excellent advantage. If your business needs the funds fast to proceed with the operations, the cash advance will be approved within a day or two.

PROS

Fast access to funds

When timing is crucial and you can't go through the lengthy bank approval process, the MCA is your solution. Small businesses can get funds within a day or two from submission. Unlike the traditional bank process, the financial institutions that issue MCAs don't do rigorous checks. They will check the business's past sales to determine whether they qualify for a cash advance.

Ideal for businesses that work with cash and credit cards

Retail and restaurant businesses rely on a high volume of credit card sales, making them ideal for obtaining MCA. If your business depends on cash or credit cards, a cash advance is the ideal financing method. This opportunity is perfect for the ones that don't rely on invoices. Instead, they take a percentage of the credit card sales to repay the loan.

CONS

High-interest rates

Merchant cash advance comes with higher interest rates than traditional bank loans. The convenience of having the funds fast will cost more. However, the price is worth paying when you need urgent funds to proceed with the business operations.

What Is Cheques Factoring?

A post-dated cheque is a cheque that can be cashed on the indicated date on the document's face. It is a form of advance payment and can be cashed on a specific date. According to Canadian laws, a cheque can't be cleared before this date. If you still need cash to keep your business's liquidity, you can sell the cheque to a factoring company.

PROS

Fast approval

Depending on the date indicated on the check face, you might have to wait long to receive the payment. If you need to meet your business needs urgently, factoring your cheques will provide you with funds quickly. They will pay off a particular value of the face value while keeping a specific percentage as a fee.

No credit score checks

When applying for a traditional bank loan, they will do a rigorous check on your financial history. When your small business is relatively new and doesn't have a credit history, you might be restricted from obtaining such loans. Your ability for cheque factoring isn't assessed with credit history, and you aren't required to disclose collateral. This is very important, as you don't need to put your property or equipment at risk. The factoring company will check the check for authenticity.

Not deal with cheques

Having to deal with cheques is a tedious job. Passing this responsibility to a third party means less time spent sorting out cheques so that you can focus on the more important aspects of your business.

CONS

Higher cost

The factoring company will charge fees to provide you with the cash in advance. They will usually pay 80% of the amount indicated on the face. However, the high cost might pay off if you need money urgently.  

Requirements

Cheques factoring companies might have specific requirements for cashing out your document. For example, the check drawer should be a reputable entity. Also, the factoring company might have particular requirements on the cheque's active time.

Merchant Cash Advance vs. Cheques Factoring

For cheques factoring, you will pay a fee to the factoring company expressed as a percentage of the total amount. On the other hand, you will pay off your MCA as a percentage of your future sales. When choosing the suitable financing method for your company, select the one that is a better fit for your needs. We at 2M7 are dedicated to providing the needed funds to enhance your business's liquidity without restrictions on how to use them. Get in touch with us, and we will answer your specific needs! For a broader look at how merchant cash advances can support business growth, read merchant cash advance benefits for business growth.