Loans… everyone who starts a business or has a great idea for a business will usually need one to get the venture up onto its feet.
Given the global recession induced by the pandemic (COVID-19) back in March 2020, the need for business loans has skyrocketed with businesses needing cash injections to keep their business afloat.
Those who have struggled most are the small business, startups, or those who are looking to grow an established business because financing is becoming increasingly hard to find - especially for those who lack credit history, cash flow to meet the loan repayments, or have bad credit.
In this post, you’ll learn everything you need to know about securing business loans in Alberta. This includes the difference between a personal loan -v- a business loan, the different types of loans available to you, how to strengthen your business credit as well as addressing some frequently asked questions!
Without further ado, let’s take a look at the first step in your Business Loan journey:
Doing Your Research
Jump On Google
If you’re in Alberta, the first step of applying for a business loan is to do some solid research. The best way to get the ball rolling on this is to do a simple Google search - something like ‘business loans Alberta’.
What will then be presented to you is a list of any lenders that are offering some sort of Business Loan available for businesses in Alberta - what an easy start!
Using the internet to access official resources is so quick and easy - doing your own research so you have a basic understanding of the lending process & terminology is strongly recommended so you’re able to ask the best questions when you sit down with an expert!
Ask A Friend
Although this may not apply to everyone, you can always ask around to see if any of your peers have ever tried to apply for a business loan and what their experiences were. However, just be aware that each borrower is unique and so the interest rate, requirements, and borrowing conditions will vary for each person - what one person gets, won’t be what another person gets!
Use Official Resources
This is probably the best way to figure out your Business Loan options. The Alberta government has a Small Business Resources page that provides small businesses advice and tips on how to get business financing as well as a ton more valuable information to help your business thrive.
By using their official resources, you can see all options available to you directly from the Alberta government so you know what you’re reading is reliable.
Speak To A Reliable Lender
This may sound silly but you can speak to lenders for advice - just because you don’t intend to have them as your lender, you can still ask questions on what’s available to you.
The consultants who you speak with will have provided lending advice to Albertan businesses daily so can give you much better insight into what a friend/colleague may provide whilst also helping you understand more than just what is written on the internet.
Want to know what your options are? Fill out this short form and discover what lender would suit your needs!
Types Of Business Loans
Although we’ve already given you a full research arsenal for you to do solid research - what kind of business would we be if we didn’t give you what you needed… since you’re already here, right?
Let’s take a look at the different business loans available to you in Alberta and a little bit about what each of them is:
As you can probably deduce by the subtitle - these loans are typically used to finance work over the long term. These loans tend to be larger in amount than shorter-term loans and have the option to be repaid over several years if required.
These funds can be received from the lender very quickly (less than a week) and so are great for those looking for a quick boost in cash. However, these loans tend to be secured against something such as an asset to ensure the lender can retrieve their money should you run out of cash.
SBA loans are loans that are guaranteed by the Small Business Administration - this means that if you can’t repay the loan, the bank still gets their money back! Due to this, the interest rates are relatively low (due to reduced lender risk) and loans can be for vast amounts of money payable over 20+ years!
When applying for SBA loans, it’s worth noting that the application can be very long and you need to satisfy a lot more criteria than a standard business loan - due to this, it may not be the best loan for someone looking to obtain financing relatively quickly.
A good way to think of this is just an amped-up credit card - but without the card. A line of credit gives you access to a pool of funds up to a certain amount (a credit limit) and you only pay interest on the money you borrow (the same as a credit card). This is great if you’re not sure about the amount of cash you’ll need and don’t want to pay interest on cash that you don’t need.
However, this is a difficult source of financing to obtain as you require a great credit rating and a steady stream of revenue to be shown - something that budding businesses may struggle to get.
This is exactly what it sounds like - this financing option is based on the purchase of equipment. This could be to buy a new manufacturing tool or asset that will cost a large amount of money. The reason you may opt for this is if the seller does not offer payment plans or their financing options aren’t very favourable.
Seeking equipment financing for an alternate lender can see you pay a lot less interest on the financing whilst also still being able to afford the equipment. However, interest rates do hinge on having good credit and a strong Balance Sheet so this also needs to be considered.
These can often be advertised as ‘payday loans’ for businesses - these loans are used to help you meet an immediate cash shortfall.
The term of these loans can range from a few days to a couple of weeks. Generally, the application process is super quick and you can get the money as fast as 24 hours - however, this convenience comes at a cost.
Interest rates given on the loans can be very unfavourable so it may be worth exploring other options that get you there at less of a cost - perhaps a credit card?
This is the exact same as Equipment Financing but just for Real Estate. These are solely used to finance the purchase of Real Estate. Applications can be quick and easy with little documentation required.
If you’re a business that relies on being paid on time by your customers to keep funding your business then invoice factoring could be a great option.
Invoice factoring essentially consists of having the Factoring business pay you a certain percentage of your invoices immediately (say, you get 80% of the money you have invoiced) - the Factoring business will then take on the full amount of the customer’s debt (so 100% of what you invoiced them) and try to recoup it directly from the customers.
Just ensure you do your research on these businesses as you want to ensure that they don’t sour customer relations by being too pushy or aggressive in their methods of trying to recover the money.
Lending Requirements
If you’re not sure of the best type of lender to go through, here’s a table to give you a brief idea of where you could look:
Requirements: | Bank Loan | Government Grant | Business Lender |
Must be a startup/expanding business | ✘ | ✔ | ✘ |
Must be Alberta Resident | ✘ | ✔ | ✘ |
Must have 0.5 -1 year experience in business industry | ✔ | ✔ | ✔ |
Need Business Plan | ✔ | ✔ | ✔ |
Strong Credit Score | ✔ | ✘ | ✔ |
Needs to be an established business | ✔ | ✔ | ✔ |
How To Choose A Great Lender
So now you’ve done all of your research and you know exactly what sort of financing you want to opt for - what’s the next step?
Of course, you now need to select your lender.
If you’ve got bad credit or you’re not a very established business - your options are going to be limited with interest rates being a lot higher due to the risk of lending to you.
Here’s how to get yourself paired with a great lender:
The best and most reliable lenders always take the cream of the crop and so you need to make yourself as ‘lendable’ as possible by building business credit!
The best ways to build your business credit include:
Open A Business Bank Account You’d be surprised at how many small businesses/startups don’t open a bank account for their business. They tend to use their personal account for business purchases as it does the job and side-steps the additional administration of having to open a different account. This is not a great idea as, when you come to applying for finance, on paper, your business hasn’t got a bank account or any cash in its own name! Get Yourself A Business Credit Card This probably doesn’t come as a surprise but the best way to build credit is to get credit! It sounds a little contradicting - how can you get credit if you need to build credit to get it!? A credit card is a great way to get started on the credit ladder - ensuring you pay off the balance on time (or even better, early!) will see your credit rating slowly start rising. Once you’ve established a solid foundation for your credit rating, you’ll find that more financing doors will start to open. Pay Suppliers On-Time This doesn’t directly contribute towards increasing your credit rating but it certainly avoids the risk of it going down. By not paying your business suppliers on time, you risk the chance that action is taken against you and a mark is left on your credit score. Having such a mark on your rating will really damage your chances of obtaining financing as you will be seen to have a history of not paying back the money you owe.
Determine Exactly How Much You Need
Start your application with the exact cash figure in mind that you need from this financing. Show the lenders that you have a serious need for this money and you can easily back up the amount you want to borrow.
This gives lenders a good sense of where their money is going and increases the credibility of your application. If you can win the lenders over with your reasoning then the application process should be an absolute piece of cake!
Get Your Financials Ready
This leads on from ‘Determine Exactly How Much You Need’ as the supporting information you’ll want to provide to maximize your chances of being accepted will be clear and concise financial statements.
Lenders will usually want to see your Balance Sheet (a snapshot of your business's assets, liabilities, and equity) to determine how financially solvent you are. Additionally, they will want to see some sort of Statement Of Cash Flows that highlights your cash shortfall - this shortfall should be the basis upon which your application rests.
Read The Small Print
When you’re at the point of applying, make sure you read absolutely everything before you make the submission. Key things to watch for are:
Interest Rates
Interest rates are typically the most important aspect of a loan for a borrower - this is ultimately how much the loan is going to cost them to borrow.
Some loans levy variable interest rates (depending on the term of the loan) and so you need to be extremely careful to ensure the rate you’ve been quoted isn’t just an introductory rate that increases after a certain period of time.
Early Repayment Penalties
Another thing to watch for is the penalties of early repayment of loans. Some lenders like to guarantee the amount of return they get on lending and so by having the loans repaid early, the interest earned is less than it would have been over a longer repayment period.
In order to recoup some of the interest foregone, some lenders build in penalties to avoid this from happening - just make sure you watch out!
If you already meet the below requirements, but you don't know what "door to knock"?
Frequently Asked Questions
How much can I borrow for a business loan?
In short, you can ask to borrow as much money as you like, however, there will be a few factors that will be taken into consideration when a lender is looking at your application. These are namely:
Years in business;
Credit score;
Debt-to-income ratio;
Business revenue;
Assets and liabilities; and,
Type of financial institutions (such as those in the ‘Lending Requirements’ section).
Typically, most lenders won’t lend more than 10%-30% of a business’s annual revenue.
Do I need to pay a broker to help me apply for a loan?
Absolutely not - the broker is paid a commission by the lender. The only costs to you will be the interest paid on the loan borrowed.
How do I build my business credit if I just started my business?
Jump to the ‘How To Choose A Great Lender’ section to see the answer in detail. However, the best first option would be to open a business bank account and get a business credit card. Ensure you clear the credit card before it’s due to start building a strong score.
What about if I have a bad credit score, what can I do?
You have a couple of options:
Consider getting a cosigner - this is essentially a guarantor. The cosigner will agree to pay off the loan if you’re unable to meet your payments.
Join a credit repair program - this is someone who will advise you on what your next best steps are to get your credit rating back on track. It’s possible to fix your credit yourself but if you’re unsure, it’s always best to seek help from a professional.
Bottom Line
Now you should be confident in finding and applying for business loans as well as understanding the sort of eligibility criteria that lenders look for and how to maximize your chances of success.
To recap:
Ensure that you do your research to only deal with reputable and credible lenders;
Understand the types of loans that are available to you and which loan would be best suited to your needs;
Have your financial statements ready to go for the lender to review;
Have a clear idea of how much money you’re looking to borrow; and
Look after your credit score as this is the proverbial key that will unlock all of your lending and financing options.
If you still have questions or would like to know what lender options match your requirements, please reach out:
Telephone: (650) 459-8656
E-mail: thetakeofffunding@gmail.com
Or fill out our contact form here!
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