Launching a startup business in Canada can be an incredibly exciting journey, but it’s not one without its challenges. Case in point…funding. Unfortunately, financing is one of the biggest hurdles companies face, which leads many to seek startup loans with no collateral. Yes, they exist, but they can be difficult to understand, which is where we come in.
At Bizfund, our team shares in today’s blog what you need to know about how to get a startup business loan without collateral in Canada. We share an eligibility checklist, the types of unsecured loans available to startups, and how to apply.
What Are Unsecured Startup Loans?
An unsecured startup loan is a loan that doesn’t require collateral. This means you won’t need to pledge physical assets such as equipment, vehicles, or property as collateral. Instead, your chances of approval for startup business loans with no collateral depend on factors such as industry risk, credit profile, projected revenue, and the overall strength of your business plan.
Since startups in Canada often lack operating history or assets, an unsecured loan is the most realistic path to early funding. However, in Canada, unsecured startup loans typically have much shorter terms and slightly higher interest rates than secured loans.
This is the case because lenders are taking a higher risk lending to you when you don’t have any assets as backup. However, it isn’t all doom and gloom. Often, the downsides of higher interest and shorter terms are counterbalanced by the faster approval times and greater eligibility flexibility on offer.
With a startup business loan with no collateral, you have an opportunity. Your business will gain access to much-needed funds to help you generate cash flow, establish operations, and build credibility. And the door to collateral-based loans isn’t closed. At a later date, you can try your luck once you’ve built up a credit profile and proven success.
The Best Three Startup Loan Options
It’s all well and good to have an idea about what startup loans are, but you also need to know your options before you look into applying. So, have a look below to learn more about three of the best startup loans available:
- Unsecured Term Loans
The closest startup loan to a traditional one is an unsecured term loan. These loans work similarly to conventional bank loans, but you don’t need to pledge any assets. With this loan, you’ll receive a lump sum, and you’ll have to repay it over a fixed period. For many startups, budgeting is easier in the early stages with this type of loan.
Often, an unsecured loan is best suited for retail startups, consultants, and professional services firms. If you’re looking for sums of between $5,000 and $150,000, this might be your best option. However, just remember that how much you receive will depend on your cash flow and credit strength.
- Revenue-Based or Cash Flow Financing
If you’re operating a startup and your income is inconsistent, it might be better to consider revenue-based financing or cash flow financing. With these funding solutions, you won’t have to contend with fixed payments as repayments will adjust according to your sales. This helps ease pressure during slower months. An example of this type of funding is a merchant cash advance.
Usually, a merchant cash advance or a similar product works best for e-commerce companies, hospitality businesses, trades, and seasonal businesses. Often, funding amounts will fall between $10,000 and $300,000, and affordability doesn’t solely rely on your credit report. If this sounds like something you would like to explore, you could consider Bizfunds’ merchant cash advance services.
- Short-Term Working Capital Loans
If you have an immediate need for funding, as is often the case with startups, there are short-term working capital loans. These loans are designed to help your company cover urgent expenses such as supplier payments, inventory, or launch costs.
Most startups in the construction, transportation, or wholesale industries consider these types of loans because, in many situations, upfront spending is unavoidable. Additionally, short-term working capital loans are approved faster. You won’t need to wait weeks; approvals can be granted within a few days. You can also apply for amounts between $5,000 and $100,000, with repayment terms of under two years.
Eligibility Criteria for Unsecured Startup Loans
As with traditional loans, requirements vary by lender. However, most unsecured startup loans follow similar approval principles. Some of the common eligibility considerations for lenders when it comes to startup companies include:
- The business’s credit profile, payment history, credit score, and overall debt commitments.
- A business’s structure and registration, such as whether it’s an active Canadian startup or if it has attained incorporation status.
- Disclosure of the industry type, as some sectors are higher or lower risk than others.
- Financial reports of a company’s projected or early revenue, even if it is limited.
- Proof of the company’s operating time.
These are only a few of the eligibility considerations. You’ll need to speak with the specific lenders to learn what they require to approve your funding request.
How to Apply for Startup Business Loans without Collateral
Given that applying for a startup loan in Canada is usually faster and easier, it shouldn’t come as much of a surprise that the application process isn’t too challenging. Below, we share some of the common steps to get a startup business loan without collateral:
- Gather relevant documentation and financial details, such as owner identification, banking history, and revenue projections.
- Find a company you want to apply with and submit an online application with your basic business and owner details.
- Submit your recent bank statements and any other relevant documentation with your application to demonstrate your startup’s cash flow patterns.
- Show how you’ll use the funds, whether it be for marketing, inventory, or operations.
- Wait as you undergo a credit review, which will primarily focus on the startup’s owner.
- Accept the terms and contract once approved.
Bizfund offers a process similar to the one above. As an experienced alternative lender, we can help startups quickly and easily secure merchant cash advances to meet their funding needs.
Tips for Success
To secure new business funding, it’s a good idea to keep in mind a few important tips. After all, any minor improvements in how you present your startup can go a long way in determining whether or not you secure approval and favorable loan terms.
Here are a few strategies you could employ:
- Only ever apply for a realistic amount that actually aligns with early-stage cash flow. The biggest mistake would be applying for more than you can repay.
- Do your best to maintain clean banking activity. This includes avoiding overdrafts wherever possible.
- Make sure you’re always specific about how you use your funds. You want to demonstrate how a loan supports growth.
- If any credit concerns arise, be sure to address them upfront. You don’t want to count on hoping they are overlooked.
- Make sure you choose the right lender. You want one with experience working with startups like Bizfund.
Key Takeaways
Hopefully, you now have a better understanding of how to get a startup business loan without collateral in Canada. As you can see, it’s not as difficult as you might have been led to believe.
As long as you keep in mind the tips we shared and confirm the specifics of the eligibility criteria and the application process, the process should be smooth sailing. This is, of course, if you meet the requirements.
If you’re ready to explore your funding options, consider a merchant cash advance with Bizfund. We offer a simple application process and cater to startups across multiple industries. If you would like to learn more, please contact us here.
