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Everything You Need to Know About Alternative Lenders in Canada

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Alternative Lending in Canada: Alternative to What?

Reading the word “alternative” likely brings up the question “what is the standard or conventional option?” For most small business owners who are not able to use their own personal funds, or perhaps raise money from friends and family, or who cannot or do not wish to max out their business credits, the first place that they will turn is their financial institution.

Companies that offer alternative loans in Canada offer online platforms to facilitate the financing process, and leverage a wide range of technology.

How Long Has Alternative Lending Been Around?

In some ways, the true origin of private lending goes back as far as lending itself. Whether that was borrowing money from an individual or group that charged interest, or the general interest in non-bank options.

Modern alternative lending got its start over fifteen years ago, in 2005, when the first peer-to-peer online loan is estimated to have taken place. With its start primarily in the UK and US markets, it has since grown globally, with alternative lending options becoming increasingly common worldwide.

Alternative lending in Canada has also been around for well over a decade, having grown substantially alongside market demand and overall interest in bank alternatives whether because of convenience factors or difficulty accessing capital from traditional institutions. At Merchant Growth, we’re proud to say we’ve been around since 2009.

Private Lenders Canada: Is Private Lending Safe?

As a private lender, security is of the utmost importance to us, both in terms of your private information and also in terms of the financial transaction.

Having worked with over 8,000 businesses and funded over $500 million, security is always top of mind for us.



Pros of Working With a Private Lender

Fully online: No more having to take time away from running your business, no more making appointments, and no more waiting in line. When working with an alternative lender, you can submit an application at the time of day that works for you, and from wherever suits you best, whether that be in the comfort of your home, or on the go from your mobile device.

Faster funding: With traditional institutions such as banks, in addition to the time it takes to actually go into the bank, delays in hearing back with regards to your potential approval for funding can take weeks, or even months! When working with an alternative lender such as Merchant Growth, small businesses can get funding in as little as 24 hours, with the majority of businesses able to get through the process from application to funding in an average of a week.

Approvals for a wider range of industries and businesses: Many banks will often have more restrictive policies on the types of businesses that they fund, as well as more rigid rejection policies based on the standing of the business such as their credit score. For example, businesses in the cannabis sector or restaurant industry often face higher levels of rejection with banks than with private lenders because of the lingering stigma Cannabis still faces post-legalization, or the risk profile restaurant or food-service businesses face. Working with a private lender, you are less likely to face those types of restrictions, as we work with a wide variety of businesses from all types of industries.

Unrestricted capital: Use the funds for your needs, with no need to submit a formal plan of intended use. Whether that’s purchasing inventory or equipment, hiring additional staff, opening another location, or simply for operational cash flow. Your funds, spent how you need to spend them.

Unsecured funds / no collateral required: another benefit of working with private lenders in Canada is that many (including Merchant Growth!) don’t require any collateral to approve you for financing. This is known as unsecured lending.

You run a newer business: Government grants or funding programs and banks may have different minimum requirements when it comes to how long your small business has been operational. This is another level of flexibility that working with an alternative lender provides. In the case of Merchant Growth, the minimum time in operations is six months, so even businesses still in their startup phase can apply for funding.

Things to Consider When Working With a Private Lender:

Rates: Because private lenders in Canada work with a wider range of businesses than banks and also offer financing as quickly and conveniently as they do, the rates will likely be higher than getting funds directly from institutional banks.

Term length: Because of the type of lending, private lenders cannot necessarily offer all of the same term lengths that banks can offer.

Payment frequency: Similarly, because of the length of the term, the frequency of payments may not be the same as what the banks are offering. For some small businesses this is ideal, because they do not have to make a single larger monthly payment. For others, who may prefer that, the more frequent daily or weekly payments is not their preference.

No in-person interactions: For some individuals, the convenience of online financing is a top reason for seeking out alternative loans in Canada, while for others, face-to-face meetings are essential and non-negotiable when it comes to financial transactions. Because we offer the convenience of a fully online and over the phone experience, there is no need for face-to-face interactions. However, offering the best customer service experience possible throughout the whole process from start to finish is always a fundamental value, and we aim to support our merchants and always answer any questions or concerns they may have.



Private lending: What Types of Financing Options are Available?

Term Financing:

Closer to a traditional business loan, with a term financing solution businesses can improve their cash flow with an immediate injection of funds based on future credit and debit card sales. Collateral is not required, and it offers flexible terms that factor in your business’s cash flow.

Business Line of Credit

A business line of credit is a revolving credit facility on which you only pay interest on what you withdraw. It helps you to avoid having to over rely on or max out your business credit cards, providing an additional level of flexibility.

What are the Eligibility Requirements for Private Business Loans

Each private lender will have their own specific requirements, but the general minimum requirements private lenders in Canada will look at are that the business is based in Canada, the amount of time that the business has been operating, and the amount of revenue the business generates on a monthly basis.

At Merchant Growth, our minimum requirements are:

  • Be located in Canada
  • Monthly revenue of $10K
  • Time in Business: 6 months

What Other Factors Will Private Lenders Look at to Determine if my Small Business Will Get Approved

Each lender will value different aspects of your business’s standing according to its own risk assessment profile, but some of the other general factors that will come up in conversation when examining your business on the whole can include:

  • Credit score
  • Frequency of deposits
  • Have you previously received funding?
  • Do you have any outstanding balances from previous funding?
  • Number of locations
  • Online presence of your business, including your business’s website and/or social media profiles



Alternative Lenders Canada: Is Alternative Lending Better Than Traditional Lending?

We’re probably biased because alternative lending is what we do, but in reality, it comes down to the particular needs and expectations of each small business customer.

It’s not so much that one is “better” than the other, each has its own benefits and additional factors to consider, so it’s more about factoring in the standing of your business, how fast you need the funds, the experience you’d like to have getting the funding, and understanding the repayment option.

Getting Private Business Loans: Next Steps

If you’re interested in learning more about Merchant Growth’s private business loan options, get in touch with us today or if you’re in the market for small business financing, and looking for $5K-$800K in as little as 24h, you can get started and apply here!

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