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Small Business Loans: Types, Financing Options and How to Qualify

hands stacking piles of coins

Small businesses are the backbone of the economy, and the ones that are the most successful are usually the ones that are the most flexible and adaptable. But businesses also need access to cash, and when any challenges occur, they need to be ready – flexible, adaptable – and able to work with partners that can help them access convenient and affordable financing when they don’t have their own cash flow to dip into.

Why a Small Business Loan?

Businesses can need working capital for any number of reasons, both positive and negative.

For example, a business could experience a boom in sales and have an urgent need to hire and train additional staff. Their success could also necessitate the upfront purchase of extra equipment or the rental of additional space for them to expand operations.

Conversely, a small business could face unexpected challenges or require restructuring, leading to temporary cash crunches that limit their ability to purchase inventory or implement necessary marketing campaigns.

No matter the reason, when an infusion of working capital is required, it is common for small businesses to apply for small business loans. Below we’ll discuss some of the advantages and challenges involved in securing a small business loan, as well as offer ideas about alternative approaches small businesses can explore.

Greyscale old bank building

Who Offers Small Business Loans?

There are a number of places a small business can look when trying to source small business financing. Some of the most popular options include:

Banks and Traditional Financial Institutions

One of the most common loan choices for small businesses in Canada and the United States are the big banks and other major financial institutions. Because of their size, banks can offer lower interest rates than some of their competitors, making them an attractive choice and in many cases the first place a business will try to get funding.

Unfortunately, banks are generally risk averse, and will only be good choices for certain types of businesses, for example, those that can provide collateral, that have good credit, and that aren’t in a hurry. In many cases, the time it takes to receive a loan can take between two and six months, and for many businesses, the terms and conditions make these loans difficult to access.

Credit Unions

Credit unions are slightly more accessible than the big banks, but they still have sizable collateral and credit score requirements. These organizations are typically private institutions, meaning that applicants must also be members before they can apply for short or long-term funding.

Community Organizations

Community organizations can sometimes be a convenient access point for new working capital, and these non-profit organizations certainly have a place supporting local communities and the start-ups and small businesses therein. These groups can be very helpful, but one downside to working with them is that it can sometimes be difficult to access large sums of capital from them.

Friends & Family

Large organizations are not the only sources of funds. Your friends and family can also help you succeed. However, this process is often fraught with peril, and is usually a last resort for small business owners – and for good reason given the challenges that can come from combining personal relationships and money!

Alternative Financiers

The online lending space is growing quickly, and is often an excellent source of funds for small businesses. Thanks to their technology-backed online loan applications, borrowers can often make much faster time than they otherwise would with large banks. Applications can often be completed in minutes or days, in contrast to the weeks or months it can take elsewhere.

Some lenders offer loans, and others focus on small business financing options that turn existing cash flow into immediate working capital. Their value is speed and convenience in addition to flexible repayment terms and schedules. These types of financing options include:

How to Get a Small Business Loan from a Bank or Credit Union

Large financial institutions are typically conservative and risk-averse, and securing a loan means small businesses have to jump through a number of hoops to prove that they are a safe investment. However, if your business can put together a well-organized business loan application, it is possible to find success. These are some of the requirements in a typical business loan scenario.

Business Plans

Banks will often need to see a clear and detailed business plan to help them feel comfortable lending you the money. They want to understand your company’s vision, your challenges, and dig deep into the scale of your ambitions while understanding your market.

Balance Sheets, Bank Statements & Income Statements

Lenders like the big banks will often require financial documentation such as business banking statements and balance sheets to get a sense of your income, liabilities and cash flow status. Some small businesses may see yearly high and low periods, so banks and credit unions will also study the fluctuations of your business before approving anything.

Personal Financial Documents

Often, business owners will also need to provide their personal credit history in order to qualify for some loans. This means that if you have a strong personal credit report, it can greatly increase your chance of approval. On the other hand, weak credit can harm your ability to secure a loan.

Tax Returns

Banks and other traditional lenders also sometimes require that you provide tax return history. This helps the banks feel comfortable that there are no problems or discrepancies in your financial reporting that could lead to problems down the road.

In practice, this means that traditional lenders, such as major banks and credit unions, can make the application process quite challenging.


It is common for banks to ask for collateral for a small business loan. Assets (or a personal guarantee backed by other forms of collateral) may be required to get a small business loan.

Can You Get a Small Business Loan with Bad Credit?

Businesses with bad credit, or businesses whose owners have poor personal credit, can find it difficult to secure a loan from traditional lenders like banks. If the banks eventually grant you a loan, you can be sure that a weak credit score will increase the likelihood of having a higher interest rate.

What is Considered Bad Credit?

A person or a business can have bad credit. Credit scores (measured from 0-999) are defined by the major credit bureaus (Equifax and TransUnion), and all of a business’ creditors report payment histories to those credit bureaus. Just like it is with a personal credit score, your business’ repayment history determines your credit score.

In general, credit scores are ranked like so:

  • Credit Score of 800 – 850: Fantastic
  • Credit Score of 740 – 799: Very Good
  • Credit Score of 670 – 739: Good
  • Credit Score of 580 – 669: Fair
  • Credit Score of 300 – 579: Bad

What are the Alternatives to Small Business Loans from Banks?

Today, there are a wide range of services for small business financing. This includes alternative financiers that offer small business financing options totally different from loans.

Alternative financiers are often much easier to work with than the banks. Companies, like Merchant Growth, have streamlined application processes that can get cash in the hands of businesses quickly, within just a matter of days or even hours.

We don’t provide loans, we turn a business’ existing cash flow into immediate working capital without requiring detailed business plans or requiring small business owners to jump through hoops. There are only a few eligibility requirements, including:

  • Business must be in Canada
  • Monthly revenue must be $10,000 CAD or more
  • Business history of more than six months

Other than that, it’s pretty simple to work with us. You can complete the application in just a few minutes, and once done, a financial advisor will reach out to help you determine the best solution, one tailored specifically to the needs of your business.

Should I Choose a Bank or an Alternative Financier?

The answer to this question always depends on the business in question. As mentioned above, larger banks can sometimes offer lower interest rates and a wider variety of services and loan products. The downside is all the red tape, and all the time it takes to complete the applications.

Working with an online lender that focuses exclusively on helping Canadian small businesses is another option. Highly specialized and very savvy, companies like Merchant Growth can make the process simpler, and connect you with the cash you need right away, without forcing you to take out a loan.

When time is of the essence, sometimes a loan is not the way to go. Small businesses can find much greater efficiency and flexibility with the alternatives, such as with merchant cash advances, lines of credit, fixed financing or e-commerce financing.

Merchant Cash Advances

A merchant cash advance is a lump sum provided by a lender in exchange for a percentage of a merchant’s future credit card sales and debit card sales.

Lines of Credit

A line of credit gives small businesses the freedom to access capital when they need it, repay it when they want to, and borrow again. Unlike credit card loans, a line of credit offers favorable interest rates, where you only pay interest on what you withdraw.

Fixed Solutions

These are somewhat similar to traditional business loans, and are often best used by small businesses that don’t have debit or credit sales, but that have sales primarily generated through cheques or deposits. The cash is forwarded up front and a daily or weekly payment is made automatically to repay the balance.

E-Commerce Financing

Since E-Comm sites typically rely on credit card processing as their main form of payment, repayment is made by debiting from your processed transactions. The advantage is that there is no need for collateral, no hidden fees, and businesses can receive funds in just 24 hours after approval.

Still Confused? Contact Us!

At Merchant Growth, you can grow your business with funding in as little as 24 hours. With financial solutions tailored specifically to your needs, you can receive anywhere from $5,000 to $500,000, all backed by a group of professionals that are there to support you.

Reach out today and find out what Merchant Growth can do for you!

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