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Merchant Growth

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Smarter Loans

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Loans Canada

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Forward Funding

$5,000 - $500,000
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Start-Up Business Loan

Many new businesses in Canada usually require start-up business loans, as not all entrepreneurs can completely finance a business. These loans allow entrepreneurs to expand their business and properly bring it to life. Most of these start-up funds require interest paid after an agreed period.

Start-up business loans are borrowed stipends that financial institutions provide to a merchant to finance the growth of a new business. Alongside the Government of Canada, many for-profit and non-profit organizations also provide start-up business funding. National Bank, Business Development Bank of Canada, Sharpshooter Funding, angel investors, and Futurpreneur Canada are some sources of start-up funds. Understanding what start-up business loans entail, their requirements, and the institutions that offer them enables merchants to make educated choices. This article provides all this essential information and more.

Top Start-Up Business Loan Partners in CanadaGet a Rate
ClearcoClick here >>
Forward FundingClick here >>
Growth Street CapitalClick here >>
Kingsmen Capital InvestmentsClick here >>
Merchant GrowthClick here >>
Smarter LoansClick here >>

What is a Start-Up Business Loan

A start-up business loan is a fund that helps a young business grow and get established. This debt instrument is mainly used by young entrepreneurs who don’t have the funds to bring their dreams to life. This type of stipend is a lump sum the business owner ends up paying back with interest later.

Pros of a Start-Up Business Loan

Start-up business loans are an advantage for any entrepreneur held back by funds.

  • High Loan amounts are available for start-ups.
  • Borrowing start-up funds allow the business owner to protect their wealth
  • Borrowing start-up funds allows the business to start building business credit
  • It provides an opportunity to expand the establishment

Cons of a Start-Up Business Loan

There are still some demerits that are associated with these borrowed funds.

  • Requirements for a loan can be strict.
  • Most businesses require high credit scores for their loans to get approved
  • Interest rates are high for new businesses
Start-Up Business Loan - Comparewise

Types of Start-Up Business Loans

Start-up business loans in Canada are numerous, but they all appear in specific forms. These forms are as follows:

1.  Merchant Cash Advance

A merchant cash advance differs from what many business owners believe business loans to be. This borrowed stipend doesn’t require the business owner to pay back specific sums of money. The cash advance, here,  requires a percentage of the business’s daily credit/debit card sales. 

Many business owners prefer this option since they’re never forced to pay back more than what they earn. However, periods of higher sales will see the business owner paying back more in their merchant cash advance.

2.  Secured Business Loans

This typical start-up business loan requires the business owner to provide collateral before a loan gets offered. Secured business loans are easy to acquire since collateral reduces the lender’s risk. However, failure to effectively pay back this borrowed fund will see the collateral liquidated to repay the loan.

3.  Unsecured Business Loans

This type of business loan doesn’t require collateral. However, its requirements are much higher than secured business loans since the lender has a higher risk. So, merchants will require high credit scores of at least 650 to qualify for such funds.

4.  Revolving Lines of Credit

Lines of Credit are a unique form of start-up funds. They allow business owners to pay back their borrowed funds when they have enough cash. This offers more flexibility for businesses that take a long period to provide profit. The interest on lines of credit funds is only charged based on the amount withdrawn. Businesses must have been operating for at least six months to qualify for this fund.

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Sources of Start-Up Business Loans

The first thing entrepreneurs need to understand is that there is no specific category of business loans for start-ups. Nonetheless, new businesses have lots of business loans and other funding options that they qualify for. These funding options are as follows:

  • Business Incubators
  • Business Credit Card
  • Start-up Grants
  • Personal Loans
  • Unconventional Fund Sources
  • Business Development Bank of Canada
  • Non-Profits

1.  Business Incubators

These institutions help start-ups get off the ground by handling everything about starting a business. Unlike other lenders that just provide funds, business incubators provide more than funds. Some of the services that they provide include:

  • Training programs for employees
  • Start-up stipends
  • Free office space

There are a few business incubators that new businesses can consider, such as:

2.   Launch Academy

This Vancouver-based institution helps entrepreneurs in the tech space to launch their businesses abroad. To qualify for their aid, the start-up needs to be well-off financially and own a product in the market. eCommerce businesses, eSport organizations, and (Software As A Service) SaaS companies are businesses that Launch Academy provides aid to.   

3.  Business Credit Card

A business credit card works just like your regular credit card and supports a business’s small spending. Unlike regular credit cards, however, this one comes with a higher spending limit and start-up-friendly interest rates.

4.  Start-Up Grants

Although it isn’t exactly a business loan (since some grants don’t require repayment), start-up grants are a great source of funds. However, they’re limited because grants are only available to particular businesses. Merchants that seek to train their workforce or develop an innovative product are the most eligible for grants.

New establishments can qualify for quite a few start-up grants, and they include:

Boost Your Business Technology

Owners of small businesses get awarded $15,000 for adopting new technologies.

Innovation Growth Program

This grant is for organizations in Manitoba, as it offers $100,000 for developing new technologies or innovations.

5.  Personal Loans

Personal loans are an option to consider if conventional business loans are out of your reach. While they’re not business loans, nothing can stop you from using them as a start-up business loan.

Requirement for Personal Loans

Before you can get your hand on a personal loan, there are some criteria that you need to fulfill. Most times, these criteria increase your chances of getting a good loan at a reasonable interest rate, and it includes:

  • A source of income
  • A credit history that’s more than three years old
  • Suitable collateral
  • Debt-To-Income (DTI) ratio
  • A credit score that’s above 560
  • Valid government-issued identity card

Many financial institutions are available for personal loans. They’re a mixture of banks and alternative lenders, and these institutions include:

Loans Canada

Loans Canada is an information broker that connects individuals to the best loan sources for their needs. As such, this platform doesn’t underwrite any financial services or loans.

Interested individuals need to apply on their site and submit a request to find a suitable loan. Afterward, they’ll receive a quote from the best lenders that fit their situation. If the customer is okay with the terms, they can receive the funds in their bank accounts.

Features of Loans Canada
  • Loans typically last from a period of 3 months to 60 months
  • Loan amounts range from $300 to $50,000
  • Interest rates for secured loans are 4.70%, while those for unsecured loans range from 8.00% to 46.96%
  • Borrowers require a minimum credit score of 300

National Bank

Founded in 1859, this commercial bank is one of Canada’s premier banking institutions. National Bank is one of the best personal loan sources since they offer flexible rates and conditions for their loans.  

Features of National Bank
  • Loan periods range from 6 months to 60 months
  • Loans over $10, 000 are available
  • Customers can choose between fixed and variable interest rates
  • Interest rates range from 9.70% to 11.30%

MOGO

MOGO is an online lender that offers various products designed to help Canadians with their finances. The products this Canadian financial technology company offers help customers borrow, invest, and track their credit scores.

Features of MOGO
  • Canadians require a minimum credit score of 500 to borrow from MOGO
  • Loans ranging from $200 to $35,000 are available
  • Their loan terms range from 6 months to 60 months
  • MOGO interest rates range from 9.90% to 46.96%

6.  Unconventional Fund Sources

Besides, traditional loan sources are some uncommon means for entrepreneurs to get start-up funds. Some of these options require the business owner to repay the funds while others do not, and they all include:

Crowdfunding

This is one of the most popular unconventional methods of acquiring business funds. Nevertheless, the growth of various technological giants and blockchain networks is proof of its efficiency.

Here, the business solicits investments from interested individuals online. When people invest in a business, they either get an agreed prize or partial ownership corresponding to their investment.

Equity Investments

This is another method of acquiring funds by offering partial business ownership. Alongside partial ownership, some firms also offer future profits and a portion of the decision-making power in the firm. Angel investors and venture capital firms are the two main parties that offer equity investments.

Peer-To-Peer Lenders

Peer-to-peer lending is a business fund acquisition that requires the power of many investors online. Unlike crowdfunding, however, the business must repay the loan from peer-to-peer lenders. Although its requirements are lax, most merchants avoid this financing option because it comes with steep interest rates.

Friends and Family

If you have been unsuccessful in acquiring enough capital for your business, you could ask friends and family for help. Although it may be tempting to acquire their help for free, it’s best to make plans to pay them back in the future. This can prevent strains in your relationships and any future claims of business ownership.

7.  Business Development Bank of Canada (BDC)

This bank has the Government of Canada as its only shareholder and is also classified as a Crown corporation. The BDC is one of the best sources of a start-up business loan, and its requirements are not much. As long as an organization has been in business for at least two years, it’s qualified for a BDC loan.

This bank offers loans of up to $250,000 and allows a repayment period of up to 12 months. Many merchants prefer business financing from this bank because they can postpone principal payments till their business gets developed.

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8.  Non-Profits

Non-profit organizations are some of the most significant sources of start-up funds, as they offer financial and non-financial support. Most of the non-profits in Canada are BDC partners, making them more trustworthy. Unlike the BDC, non-profits offer aid as long as the Canadian corporation has been in business for 12 months.

Some of the non-profits that provide start-up loans include:

Futurpreneur Canada

This is another BDC partner that provides funding to new businesses. Entrepreneurs between the ages of 18 and 39 are eligible for their aid. Futurpreneur Canada also provides a 2-years mentorship program for new businesses.

Business owners can acquire loans of up to $60,000 from this corporation. Their loan periods can go up to 5 years, while their special interest rate is 6.7%. Although interest is only paid in the first year, merchants also pay $50 when they’re funded, alongside a $15 monthly fee.

Startup Canada

Unlike the other non-profits that provide a mix of financial and non-financial aid, Startup Canada solely provides non-financial aid. This company instead directs the entrepreneur towards resources that would be of aid to them. They also provide free mentorship and support to entrepreneurs.

Alternative Sources of Start-Up Business Loans

Alternative lenders are one of the most popular sources of start-up business loans. Although they don’t all provide massive amounts like commercial banks, their requirements are much lower. They also approve loans to traders that banks and credit unions have rejected.

Besides their lax requirements, another advantage of alternative lenders is their faster funding. Alternative lenders approve loans more easily than commercial banks. Of course, the trade-off for these benefits is higher interest rates.

Some of the requirements from alternative lenders include:

  • Monthly revenue of at least $10,000
  • The business is based in Canada
  • The business should have been in business for at least three months or 100 days.
  • A business plan

There are many alternative lenders that Canadian business owners can visit for business loans, and they include:

Growth Street Capital

Growth Street Capital is one of the many non-banking institutions that offer Canadians a range of financial solutions. One of their financial solutions is business loans for businesses that have been registered for at least six months.

Features of Growth Street Capital

  • They provide loans of up to $300,000
  • Their application process is completed online
  • Loans get approved within 24 hours
  • The repayment period for unsecured loans ranges from 6 to 12 months
  • The repayment period for secured loans can reach five years

Sharpshooter Funding

Sharpshooter Funding is a Canadian firm that offers various financial solutions for small businesses. Their start-up loans don’t require collateral, as the business’s health is the qualifying factor.

Features of Sharpshooter Funding

  • They provide loans of up to $300,000
  • Loans get approved within 72 hours
  • The loan application process is completed online
  • The repayment period for their loans ranges from 6 to 120 months
  • Interest rates for Sharpshooter Funding business loans range from 5.49% to 22.79%
  • Some loans require a credit score of at least 580

Clearco

Clearco is a loan company that provides aid to tech start-ups registered as corporations or limited liability companies. This company offers quick loan applications and low rates for their funds.

Features of Clearco

  • They provide loans ranging from $10,000 to $10 million
  • Loans get approved within 24 hours
  • The loan application process is completed online
  • The repayment period for their loans depends on the loan itself
  • Interest rates for Sharpshooter Funding business loans range from 1% to 20%
  • Credit scores are not considered when approving loans

Start-Up Business Loan Conclusion

A start-up business loan is a fund that many entrepreneurs borrow when they cannot wholly fund their business idea. Besides acquiring the needed funds, these loans also allow the business to expand and build business credit. Among the many merits of these borrowed funds are a few demerits, such as high-interest rates.

Start-up business loans come as secured loans, unsecured loans, merchant cash advances, and lines of credit. The sources of start-up funds are numerous in Canada, and this article has discussed them in full.

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FAQs about Start-Up Business Loans

Is It Possible to Acquire a Startup Fund without a Credit Check?

Although Credit checks are integral to acquiring start-up loans, some lenders ignore them. Besides non-profits and crowdfunding platforms, alternative lenders like Clearco also disregard credit checks.

Do All Startup Loans Require Collateral?

No, not all start-up business funds require the business to provide collateral. Unsecured loans do not require collateral but have the borrower battle with strict requirements and high-interest rates.

Can I Get an Unsecured Startup Business Stipend with a Bad Credit Score?

Yes, getting an unsecured business stipend is possible even when you've got bad credit. Many alternative lenders like Clearco and Growth Street Capital allow business owners with bad credit to acquire unsecured loans. However, the repayment period for these loans is short, and their interest rates are high.

Will a Start-up Loan Affect My Personal Credit Score?

No, start-up loans rarely affect the business owner’s credit scores when they keep business and personal finances apart. This is more evident in the case of limited liability companies and corporations since those businesses have their own legal identity.

Can I Use My Personal Loan to Pay off a Business Loan?

Although it's not advised, you can use your personal loan to pay off your business loan. That’s because most lenders do not specify what a customer can do with their personal loan. So, besides using loans to finance a business, customers can also use personal loans to pay off business loans.

What Is the Typical Period for Startup Business Funds?

Most start-up business funds require the merchant to repay the loan within 6 to 60 months. However, some exceptional cases like Sharpshooter Funding and other alternative lenders allow up to 120 months.

How Much Collateral Does a Secured Loan Need?

Regardless of whether it's from a bank, an alternative lender, or some other financial institution, collateral is based on the loan. This means that the amount a merchant collects as a secured loan will determine the required type of collateral.

How Much Can a Start-up Loan from Financial Companies?

Most financial institutions offer new businesses funds ranging from $5000 to $50,000. This doesn’t mean that all financial institutions are like this, as some offer stipends as low as $200. Lenders like Clearco are on the opposite end as they offer up to $10 million.

Will a Lender Check My Personal Credit Score before Approving My Business Loan?

Since start-ups do not have business credit, most financial companies use the owner's credit score instead. The personal credit score of the business owner acts as a reflection of the risk in giving out that loan. Business owners with good credit scores are seen as low-risk customers and more likely to get loans.

Are There Any Ways of Increasing My Chances of Getting a Startup Business Fund?

There are many things that a business owner can do to increase the chances of getting their loan approved. These actions include paying off all personal loans, improving your credit score, and providing collateral.

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