How to get your credit card back on track

There is a wide array of services available to businesses in Canada seeking to bolster their cash liquidity. This article will explore some of the most popular options, as well as their best use cases. These financial solutions typically include a combination of bank loans, CEBA loans, government business grants, factoring, cash advances, payday loans, and microloans.

Businesses can utilize these financial options to optimize growth, gain liquidity, bridge emergency situations, or capitalize on opportunities.

Let's delve into our options:

1. Traditional bank loans

This is the most conventional form of financing that small businesses can utilize to obtain Typically, these loans are secured by collateral, and may offer lower interest rates, making them an appealing choice for businesses with strong credit. However, small and medium-sized businesses adhering to conservatism and GAAP principles might have lower perceived financial strength, which can make obtaining traditional financing more challenging, especially if the bank relies on financial statements as part of its due diligence process. This can be particularly problematic for new startups and businesses without a significant financial track record. Furthermore, liquidity provided might be limited if a business is relatively new or experiencing volatility, even with collateral in place.

2. CEBA loans

The Canada Emergency Business Account (CEBA) loans are interest-free loans of up to $60,000 designed for small businesses impacted by the COVID-19 pandemic. These loans are 100% backed by the government and do not require any collateral. Businesses can use these loans to cover operating expenses such as payroll and rent, as well as for purchasing equipment or expanding their operations. The CEBA loans offer flexibility and accessibility with a few caveats. Firstly, the loan forgiveness repayment date has been extended to December 31, 2023, for CEBA loan holders in good standing. This means that loan holders may have to start repaying their CEBA loans as early as 2024. Secondly, eligibility is only applicable to businesses that have had an active business account with their financial institution as of March 1, 2020, and can demonstrate a decline in revenue due to the pandemic.

3. Factoring

Factoring enables businesses to sell their accounts receivable (invoices) to a third-party (a factoring company) at a discount. The factoring company then acts as the agent to collect payments from the invoice customer, providing the business with liquidity (cash) based on a certain percentage of the invoice amount. Factoring can significantly improve cash flow for small and medium-sized businesses by offering liquidity and quick access to funds. It is also helpful that the factoring company will be the one taking care of ensuring invoices are paid, freeing up valuable resources for small businesses.

4. Government business grants

The Canadian government provides an array of business grants designed to help small businesses flourish and These grants typically target specific industries or business activities, such as clean technology, innovation, workforce development, and international trade, among others. A considerable number of grants currently emphasize research, development, and exporting. The application process for these grants can be intricate, requiring well-prepared grant proposals that effectively communicate the business's objectives, anticipated outcomes, and potential impact. This process is often competitive, as numerous businesses vie for the limited funding available. Newer businesses or those without prior grant writing experience may find this process daunting, and may benefit from seeking professional grant writing assistance or collaborating with experienced partners in their industry. Despite the challenges, securing a government grant can be a game-changer for small businesses, providing essential funding without the burden of repayment, and fostering growth, innovation, and competitiveness in the marketplace.

5. Payday loans or Microloans

Payday loans and microloans are small, short-term loans that are typically utilized to address unexpected expenses or navigate temporary cash flow gaps. While these loans may not be suitable for long-term financing needs due to their relatively higher interest rates and fees, they play a vital role in providing financial support during emergencies. By offering quick access to funds, payday loans and microloans help businesses remain afloat and operational during challenging times, allowing them to successfully weather temporary cash flow issues that are anticipated to improve in the near future. This targeted financial assistance can be a lifeline for businesses, enabling them to maintain stability and continue serving their customers as they work towards recovery and growth.

6. Cash Advance

A cash advance, particularly in the form of a Merchant Cash Advance (MCA), is an innovative financing solution that provides businesses with a lump sum of cash in exchange for a percentage of their future sales (typically credit card sales). Cash advances and MCAs can be exceptional financing options for businesses that need funds swiftly or require increased liquidity to seize opportunities that demand prompt. One of the key advantages of this financing option is its speed and flexibility. Cash advances can be processed more quickly than traditional loans, often within a matter of days, allowing businesses to address their financial needs without delay. Additionally, repayment terms are tailored to the business's sales volume, making it a more manageable solution for businesses with fluctuating revenues. MCAs are particularly valuable for new businesses and small enterprises that may face challenges in obtaining traditional bank loans due to a lack of financial history, inadequate financial book strength, or a dearth of collateral. By offering an alternative financing avenue, cash advances empower these businesses to overcome financial barriers and pursue their growth objectives. Ultimately, the various financing options available to Canadian businesses each have their own strengths and specific use cases. Traditional bank loans can be attractive for businesses with strong credit, while CEBA loans offer interest-free financing for those affected by the COVID-19 pandemic. Factoring provides immediate liquidity to businesses with outstanding invoices, and government grants can support targeted industries and activities. Payday loans or microloans can assist in managing short-term cash flow gaps. And cash advances offer rapid access to funds for businesses lacking financial history or collateral. The choice of financing option will depend on the unique needs and circumstances of each business. By understanding the advantages and limitations of each option, businesses can make informed decisions about the most suitable financing solution to support their growth, liquidity, and success.

What is a small business loan?

Generally speaking, a business loan is borrowed by a business owner or a company in order to finance and manage its operations including, but not limited to, purchasing equipment or inventory, investing in expansion, hiring new employees, and more. A business loan has terms and conditions directing how and where the money can be used, what the interest rate is, and what would be the repayment schedule. Every financial institution has its own criteria and requirements for lending and offering the best business cash advance loans; each will assess your credit rating differently in order to estimate how risky it is to lend you money and will offer you several lending options.  A small business loan is fundamentally the same, where the money borrowed for small business needs to be used to purchase equipment or hire employees. For entrepreneurs who are looking to get their venture off the ground, the small business start-up loans are a great alternative. New business owners say that the biggest challenge in starting a business is to get financing. In this case, private lenders and government programs offer financing options to help out new businesses.  At the federal and provincial levels, Canada offers startups various financial aid programs within specific sectors and regions. For instance, the Business Development Bank of Canada (BDC) offers loans to entrepreneurs to set up a new business, build or renovate facilities, buy equipment, develop new products, expand into new markets, improve IT infrastructure, and even sell the business.

Getting approved for your business loan

In order to get approval for small business loans in Canada, the owner has to provide a business plan as well as have all their documents in order. Firstly, you should ask yourself the following questions which will help you with your loan application:

• Why does your business need the money?
• What is the right type of loan for you?
• What type of lender should you approach?
• Do you think you qualify? If unsure, how can you improve your situation?
• Do you have all the documents required by the bank?

Financial institutions are reluctant to provide business loans unless there is sufficient security or collateral to guarantee the loan. Numbers show that less than 25% of small startup business loan applications are approved by major lenders. That is why private lenders have become such a practical financing option in the last decade. Unlike venture capital or angel investors, they do not require you to put up a percentage of your business. Moreover, it is easier to obtain a business loan from private lenders as they are more flexible with the loan terms. The paperwork is not as difficult and loans approvals happen faster than in major financial institutions.  Below are a few types of small business loans and financing options:

1. Lines of credit
2. Peer to peer (P2P) loans
3. Merchant advances
4. Investor loans
5. Term loans
6. Commercial Bank Loans
7. Equipment Loans for Startup Businesses
8. Online Invoice Financing
9. Traditional Equity Financing
10. Personal Loans

Types of startup business loans

Startup needs differ from established and even small business needs. Moreover, the startup most likely generates zero or negative revenue in the beginning. Entrepreneurs who are looking to borrow money for their business are usually asked for personal guarantees and collateral. This means that the business owner may put up his house or any other assets as collateral for the loan. That said, start-up business loans may not be the best option – especially if there are not enough assets available. As mentioned above, small business start-up loans from private lenders are better alternatives. Whether obtained through crowd-funding, private lenders, or the government, small loans can help a business owner pave the way for his business. Currently, equipment loans for startups are very popular. These are relatively small loan amounts, so the equipment that is purchased can be put up as security. Merchant cash advances and peer to peer funding can help small businesses with their cash flow and managing operations. Business lines of credit (LOC), sometimes called corporate credit loans, are like credit cards but for businesses. It is a revolving credit system, where the business owner can withdraw the amount of money they need, up to the credit limit allowed by the lender. The borrower only pays interest on the amount that is borrowed. A business LOC can help a small business owner meet its cash flow requirements and manage their debt effectively.

A merchant cash advance for start-up businesses

Known as a “business cash advance”, merchant cash advances work on different terms compared to traditional loans. Unlike bank loans, a merchant cash advance does not evaluate credit score. Small business owners can typically receive up to $300,000 startup business Cash advance, without having to offer security for the loan!Under a merchant cash advance, the business receives a lump sum of advanced cash with the condition that the lender will receive a percentage of your future sales. Therefore, the merchant cash advance is a simple and fast way of getting capital right away. A merchant cash advance for startup businesses is a great financing option, allowing flexibility in repayment. For instance, if your sales in one month are lower, then the repayment amount will be lower; similarly, if your business performs very well the next month, your loan repayment will be higher. The private lender also takes care of repayments, ensuring there are no delays in payments from your end. Most of them have agreements with major payment processors, so private lenders can set up repayments based on your daily sales received by credit cards, which eliminates any headache of repayments on your end.   For business borrowers who need the money as soon as possible, merchant cash advances are one of the fastest ways of getting cash flow. Once the business loan is approved the cash advance is directly deposited into your account within one or two days. If you think it might be a good solution for you, do not hesitate to get in touch with us.

If you’re a small business owner, you know it can be difficult to maintain cash flow. While there are different financing options on the market, many people might consider a merchant cash advance (MCA) and a business loan to be the same thing. While these are both legitimate options to consider, there are key differences you should know before choosing between a merchant cash advance and a business loan.

Bank Loans are the More Traditional Option

A bank loan is the more traditional financing option and what many people consider when they are starting a business or require additional capital, for example. Once approved for the loan, the bank provides a lump sum of cash in exchange for monthly payments over a set period of time with either a fixed or variable interest rate.

Merchant Cash Advances Have Crucial Differences

The merchant cash advance industry is one of the pioneers in alternative lending options - these are not your traditional business loans.An MCA provides your business with a lump-sum payment, like a loan, but the repayment plan is not structured in monthly installments. Instead, the MCA is repaid using a percentage of future credit and debit card sales drawn directly from your future revenue.MCAs, therefore, do not qualify as a loan and don’t require personal guarantees or a stellar credit score.If your small business needs an influx of capital, consider a merchant cash advance before you visit your bank. If you have questions about the differences between lending options, we are always here to help.