When starting a small business, having the capital is crucial. On the other hand, finding the right sources for your finances could be perplexing. The truth is that finding small business loans in Canada is hardly an easy venture. However, if you know what to look for, the task can be less burdening.
If you are mulling over applying for a loan to kick start your business, the main aspect you should be looking at first are the types of loans available. After you have write down all the things you will need for your venture, you can look at the different ways you can get your hands on a capital especially if you don’t have the savings.
Here are the most common types of small business loans you will find in Canada:
- Friends and Family Loan. This type is the most common and probably the easiest way for you to obtain a capital for your start up business. The great aspect of this type is that it is the least stressful provided that you know what you’re doing. The downside, if you don’t put the lending in writing, it can easily become the most stressful.
Borrowing from friends or family can put a strain on your relationship if you are not able to meet the expectations. This is why when you are choosing this type of loan, it is always better to write the conditions and terms. Doing so will not only keep your relationships in tact but it will also help you become a more responsible business owner.
Provided that you follow expectations, you can benefit so much from lending from your friends or family. Since you know these people personally, you may be able to borrow capital that has the lowest interest rate compared to other types. At the same time, most friends and family who lend their money usually have the drive to help you out achieve your goals and be successful in your business.
- Working Capital Loan. This type is a short-term loan and its main objective is to help you add money to your cash on hand so that you can proceed with expanding and growing your business. Working capital loans can also help you handle your everyday expenses such as payroll and renovations.
If you want to use this type of loan, you need to be able to show proof that you have a good personal credit history. There is also quite a bit of paperwork you need to accomplish when applying and the process can take months to be approved. The good side to capital loans, though, is that they could help finance your business operations and the interest you need to pay for lending is quite low.
- Accounts Receivable Factoring. This looks to be the most complicated type of business loan out there. Some lenders allow you to convert credit-based sales into payments for the loan you applied for. Such type of loan is favourable as a short-term mode of financing while you are in search for better loan options.
The disadvantage of this type is that it can be expensive that is why it is best to look into other types of loans before applying for accounts receivable factoring. You could also be ending up paying more than necessary when you use this type.
Business Loan will always help you obtain capital. The only thing you need to think on is which among these works for you.