Alternative Business Financing in Canada: Beyond the Bank

In Canada, many businesses still turn to their banks first when they need funding, and this makes sense. After all, it feels like the more familiar and responsible choice, but it’s not the only option. In fact, alternative business financing in Canada is becoming a go-to choice for an increasing number of companies, driving significant growth in this sector. 

This shows a shift towards digital-first financial solutions and means it may be time for you to consider non-bank business loans in Canada if you need funding. With this in mind, today we’re exploring what you need to know about alternative business financing, including the types, how to evaluate a lender for the best fit, and red flags to watch for to stay safe. 

Why Banks Decline Small Business Applications

A bank’s role is to manage risk over a longer-term horizon. This means that small-business bank applications are assessed against strict criteria. For instance, if you apply to a bank, they will check your credit history, collateral, and financial statements. This is to assess how stable your company has been and will be throughout the duration of the loan. 

Unfortunately, for many small businesses, especially those in growth phases, those criteria don’t always reflect how the company actually operates. You could have impressive recent sales but limited assets. Or you might be profitable but experience uneven cash flow across the year. In both situations, you may face a declined application, and it’s not because your business is failing. It just doesn’t meet the bank’s model. 

But a light at the end of the tunnel could be alternative lenders for Canadian small businesses. It is in this gap that they operate as they focus more on current revenue and cash flow. This allows them to work with businesses like yours that may fall outside traditional lending frameworks. 

Types of Alternative Financing in Canada 

If you’re looking into alternative business financing in Canada, you’re likely looking at the types available. Despite what you might have been led to believe, there are actually a fair few you can choose between. However, obviously, some solutions are better than others depending on your business’s needs. So with this in mind, here’s a look at your options:

• Merchant Cash Advance: If you need upfront funding and want to repay installments based on a percentage of your future sales, then look no further than a merchant cash advance (MCA). An MCA is usually a good option for companies with consistent revenue but uneven cash flow. For instance, businesses like restaurants, retailers, and service companies.
• Invoice Factoring: For businesses that rely heavily on invoice payments, it may be time to consider invoice factoring. This type of financing solution allows you to turn your unpaid invoices into immediate cash…for a fee cut. It’s usually used by companies that work with larger clients on 30,60, and 90-day terms. 
• Purchase Order Financing: If your company often has confirmed customer orders but lacks sufficient cash to fulfill them, purchase order financing can help pay suppliers. This form of funding is usually best for wholesale, distribution, and product-based businesses.
• Equipment Financing From A Non-Bank Lender: There are, in fact, equipment financing loans that aren’t bank-backed. These loans are ideal for those who need to buy vehicles, kitchen equipment, tools, or technology. 
• Revenue-Based Financing: Another option that ties repayment to a percentage of monthly revenue is revenue-based financing. In most cases, this form of financing works for e-commerce companies, SaaS, and other businesses with predictable sales patterns but limited traditional collateral.

The Alternative Lending Decision Matrix 

We understand that making an alternative lending decision can be a bit of a challenge, which is why it helps to understand the decision matrix for this type of funding. Below, we’ve shared insights that might be helpful. Just remember that choosing the right option comes down to how your business operates. 

How to Evaluate an Alternative Lender 

Unfortunately, not all alternative lenders offering fintech business loans in Canada will have your best interests at heart. Also, not every single one of them will operate in the same way. That’s why it’s so incredibly important to understand the regulatory environment in Canada. 

For starters, unlike federally regulated banks, many alternative lenders are regulated at the provincial level. This means that, unbeknownst to you, oversight can vary depending on where the lender operates. That’s why it’s worth confirming that the lender is properly registered and compliant within your province before you try to access funding through them. 

Then, regulatory compliance aside, you also need to understand your rights as they relate to alternative financing. You can use resources from the Financial Consumer Agency of Canada to understand your rights and compare financial products. While the FCAC does not endorse specific lenders, it provides guidance on how to assess costs, terms, and disclosures.

Additionally, when reviewing an offer, we recommend considering the full cost, the repayment structure, and how payments will affect your cash flow. This matters just as much as regulations. After all, the goal is to understand how the funding fits into your business, not just how quickly it can be approved.

Red Flags to Watch For

If you’re under pressure to secure financing, it can be incredibly difficult to take your time and find the right alternative financing solution. But it pays to be cautious and memorize red flags that indicate a lender may not be the best choice. For example, if they:

• Present unclear terms.
• Fail to state the total repayment amount upfront.
• Offer overly restrictive agreements that are difficult to exit.
• Fail to communicate appropriately. 

These are all huge red flags that you need to stay away and look elsewhere because alternative financing isn’t a last-ditch effort; it’s a viable solution that can be hugely beneficial. 

Getting Started with Alternative Business Financing In Canada

Starting is often the scariest step, but it’s not as challenging as you might be making it out to be in your head. To get started with alternative business financing in Canada, you need to first look at how cash moves through your business. In doing this, you’ll identify gaps that are present, which can help you determine what funding would address them. 

Then, from there, you can review options and compare each one to see how it aligns with your needs. Afterward, you can send in an application and wait to hear back about approval. You may also be required to present paperwork and other business details, but lenders like Bizfund make it easy. 

The Wrap-Up On Alternative Business Financing In Canada

Alternative financing in Canada has become a pretty decent option for many small businesses, especially when traditional lending does not align with their operations. If you’re exploring your options and feel a merchant cash advance might be a valid funding solution, you can speak with us at Bizfund. 
We offer quick, easy, and reliable MCAs for various companies across industries. Our application process is simple, and we offer up to $300,000 in funding. If you’re ready to apply, you can click the link here.