Getting Small Business Loans in Canada With Bad Credit

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Getting a small business loan in Canada with bad credit can be a paradox: on one hand you might need the influx of cash to get your operations to where they need be, but on the other, lending institutions may not be as willing to provide that much needed loan.

But that doesn’t mean it’s not possible. We are going to go over the options you have when considering getting a small business loan in Canada with bad credit. From evaluating and improving your credit score, to alternative lenders and other measures you could take, here’s how to get a small business loan with bad credit.

Evaluating Your Credit Score

Generally, when lending institutions consider whether or not to give small business loans with bad credit to a startup, or any other company for that matter, they look no further than your credit score. Credit is king in the eyes of banks and credit unions, with a bad credit score not only a representation of your ability to repay but an indication of your willingness to repay as well. So if you have a credit score of less than 600 – 650, you will probably be declined.

Again, there are ways to get a loan even with a low credit score, just remember that when it comes to a bad credit and a startup business loan, guaranteed approval cannot be promised.

Why is it Hard to Get a Business Loan With Bad Credit?

It’s hard to get a small business loan in Canada with bad credit because the overall success of your company does not matter.

Even if your business has been doing well consistently over a sustained period of time and you need the money to open a new store in a different location to maximize revenue, a bad credit score can tarnish your reputation beyond repair. A credit score is an indicator of trust and ability and a low credit score means that your business has neither, regardless of success.

How to Improve Your Credit Score?

When looking to obtain a small business loan with bad credit in Canada, the first thing you should try to do is improving your credit score. Here are 7 steps to improving your credit score, fast.

  • Check your credit report

Once you know your score, you know what you’re working with and can get the information you need to raise your score, including which accounts are negatively affecting your report and any disputable items on the report.

  • Pay your bills on time

One of the easiest, and most recognizable ways to improve your score, paying your pills is the best thing a small business can do to appear, and become, a reliable source of payment. Even if everything else is positive, late payments make you, and your business, a credit risk.

  • Decrease your credit utilization ratio

One of the things credit reporting agencies look at when determining credit scores is the ratio of credit used in relation to the amount of credit available. It’s typically a good idea to keep that ratio under 15%.

  • Establish credit accounts with suppliers

If you work with certain suppliers repeatedly with a good payment relationship, establish a credit account with them to increase the number of positive payments to your file.

  • Add positive payment experiences to your credit file

Not all vendors and suppliers share information with business credit-reporting agencies. Add trade references to your company’s credit file manually. The more positive payment experiences you can add to your file, the better.

  • Dispute any errors

It’s important to insure that what’s being reported on your company is accurate. Hard inquiries and unpaid accounts negatively affect your report, so if you come across something on your report that shouldn’t be there, call to dispute it.

  • “Pay for delete” with collections

Make sure that an agency will delete the negative account from your credit report. You have to explicitly ask for this—otherwise, paying off this debt won’t help your credit score because it will still show a history of negative accounts.

Small Business Loan Providers

If you want to request a small business loan in Canada with bad credit, but can’t go to the banks or other credit unions, there are other options available.

NameLoan OptionsLoan AmountInterest RatesWebsite
easyfinancialFixed and Flex (Merchant Cash Advance)Up to $300,0008-22%Visit Website
Merchant Cash Advance, Term LoanUp to $250,000From 6.75%Visit Website
Fixed term (short and long), Line of Credit ($20 fee)Up to $250,00019.99% – 39.9%Visit Website
Term Loan, Cash Line, Merchant Cash AdvanceContact the firmFrom 7%Visit Website
Merchant Cash Advance, Term LoanUp to $150,0008-18%Visit Website

ThinkingCapital

ThinkingCapital has been trusted by small businesses since 2006. They provide loans of up to $300,000 in as little as 24 hours, with no Obligation Quote and the chance to get approved in minutes.

iCapital

iCapital makes getting a small business loan in Canada with bad credit quick and easy. A 3-step application form and online banking lets you do things at your own pace.

CompanyCapital

CompanyCapital is all about flexibility. They offer lines of credit, term loans and merchant advances so you can build up and further your company’s reputation, while you pay off your loan.

OnDeck

With OnDeck, all you need is a minimum of 1 year in business and $100,000 in revenue to be eligible to receive a loan. And application is online and takes a matter of minutes.

Lendified

Lendified is another great options for companies considering small business loans in Canada with bad credit. Offering up to $150,000 in fast and affordable funding, free personalized quotes and terms up to 24 months, Lendified looks beyond your credit score.

Getting a Small Business Loan With Bad Credit: Your Options

Put Up a Collateral

If you’re having trouble getting approved for a small business loan in Canada with bad credit, you might want to consider a second loan. A secured loan requires you to put up collateral, typically an asset that you currently own.

It’s important that you discuss with your potential lender the collateral they accept and the risks associated with securing a loan. Secured loans are a great option for start up business loans with bad credit because they allow you to get the financing you need. But if you default, your asset will be seized.

Use Alternative Lenders

An alternative lender, like the ones we provided in our list, are the people you go to when you’ve applied for a business loan from banks and more traditional lending institutions and you’ve been rejected. Private lenders tend to be more lenient and often don’t even check potential borrowers credit histories or scores.

They offer flexibility, easy access and most importantly, they give you a break. There are countless private lenders out there who want to help you get the funding you need and who are willing to work with you instead of against you.

Consider Merchant Cash Advances

Consider looking into merchant cash advances if you only need a few thousand dollars due to cash flow issues. This could be a great option for you and as we already mentioned, certain alternative lenders like CompanyCapital provide them for small business loans in Canada with bad credit.

A merchant cash advance lender will provide you with a sum of money in exchange for a percentage of your daily credit card or debit card transactions. Your lender will continue to take this percentage until you’ve fully repaid them.

Final Words

While it may be frustrating, tricky and often counterintuitive trying to get a small business loan in Canada with bad credit, there are options out there and you should never give up.

First take a look at the internal workings of your business. Try to increase your credit score from the ground up. Make payments and collect and store positive payments to make your credit and transaction history something banks and lending institutions want to see.

You can also go to alternative lenders: flexible, lenient and nonjudgmental. When it comes to start up business loans for bad credit, guaranteed is not a word you hear much, but with alternative lenders, it is the closest you could get.

Otherwise you could prove your trust by putting up collateral and merchant cash advances. You put a lot on the line but it shows that you have faith in your ability to pay the loan back. And that kind of faith is contagious.

The question now isn’t how to get a business loan with bad credit. As has been shown, bad credit business loans are deals that have been made. It is now what are you willing to do to secure the loan? Take into careful consideration your business’ history, your capabilities and how much you are willing to risk.

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