Bad Credit Business Loans in Canada: What Are Your Options?

Unfortunately, statistics show that Canadian businesses are struggling with high debt levels from the pandemic. Many companies in the transportation sector and construction industry seem to be hit the hardest by missed payments driven by high interest rates and debt, leading to poor credit. But these negative financial impacts affecting credit scores are felt across several other industries nationwide.

This can make securing additional financing to right one’s business operations difficult. But the good news is that it’s not impossible to secure financing and work towards building your business credit score. If your business has bad credit, you still have options, as there are a few bad-credit business loans in Canada that you can explore. 

At Bizfund, since we understand that many business owners experience declines in bank lending, which can be disheartening. That’s why we’ve put together this guide on where to get a business loan with bad credit in Canada.

What Counts as Bad Credit for a Business Loan in Canada?

For years, there has been a persistent myth circulating in the business sphere that a ‘600’ credit score is the entry point for securing a loan. Unfortunately, there is no single credit score that guarantees approval or denial across every lender.  

In fact, most credit scores are grouped into broad ranges. Usually, traditional lenders consider where you fall within these ranges, along with other factors, to determine eligibility. For example, Equifax Canada describes scores from 660 to 724 as good. It also shows 600-659 as fair and 300-599 as poor. 

However, in most situations, a Canadian lender, whether traditional or alternative, will also look closely at your personal credit. This is more likely to happen if your business is newer or you have not yet built a strong credit profile. Then, scores aside, a lender will also look at your bank statements, monthly revenue, and existing debt obligations. 

They may also evaluate industry risk. They’ll evaluate this alongside any unpaid invoices or collateral that would strengthen your application. However, because traditional banks often adhere to stricter underwriting standards, businesses with weaker credit profiles may find it harder to qualify, even as their revenue improves.

Financing Options Available with Bad Credit

Merchant Cash Advances

If you’re looking for a no-credit-check business loan in Canada, a clear-cut solution could be a merchant cash advance. For many Canadian businesses, MCAs are more realistic. Typically, your approval is often based on business revenue and deposits, rather than on credit scores alone. If you can prove your company has consistent sales, especially with regular deposits or card sales, an MCA is within reach. However, we do want to point out that it isn’t the right fit for every business.

Secured Loans

In Canada, you can secure a loan with a traditional lender or a credit union, and it makes sense in some situations. However, with secured loans, collateral is involved. Usually, this means you will need to offer equipment, vehicles, or outstanding invoices as collateral in case you can’t make repayments in the future. Many with bad credit find this an agreeable solution, as the collateral improves their chances of approval.

Microloans

Of the many bad-credit business loans available in Canada, microloans are among the least popular. But it doesn’t mean they aren’t worth considering. With a microloan, you’re forced to borrow less, so it might not suit all situations. Yet, the good news is that since the amount is smaller, they are easier to qualify for. This makes them a good option for newer businesses with sparse credit profiles or those who want a more manageable amount of capital.

Government-Backed Programs

For some businesses with bad credit, there are government-backed programs that offer flexible criteria. For example, there is the Canada Small Business Financing Program. Through these programs, participating financial institutions can help you secure the funding you need, even with poor credit. However, although the government shares some of the risk, making it easier to gain approval, it’s up to the lender to decide whether to lend to you.

How to Improve Your Chances of Approval

Before applying, it wouldn’t hurt to learn how to improve your chances of approval. So with this in mind, here are a few tips we recommend considering before you apply:

1. Show off your business’s impressive revenue data. You can apply with documentation surrounding sales history, recent bank statements, and deposit trends. These help demonstrate how your business is actually performing.
2. Offer up collateral if it makes sense. If your financing request is tied to vehicles, equipment, or invoices, it could help strengthen your application, especially with traditional lenders in Canada.
3. Consider smaller or shorter-term financing. Initially, it might do you better to ask for a smaller or shorter-term loan that is more manageable. This would not only benefit you but also show the lender that you’re a low-risk bet. This can make future approval easier to obtain.
4. Have paperwork showing use of funds on hand. If there’s one thing lenders love to see, it’s a breakdown of how you plan to use the funding you secure. This helps them understand exactly what the funding will support, whether it’s cash flow, growth, operations, or an emergency.
5. Apply for the right product. The last thing you want is to lock yourself into a financial agreement with the wrong solution. To avoid this situation, try not to apply for the maximum amount. Also, really consider which product best suits your revenue profile and current needs.

What to Watch Out For

Unfortunately, businesses with bad credit can fall victim to the wrong financing products. Since we don’t want to see this happen to you, we’re sharing a few of the things you need to be on the lookout for before you sign any financing agreements, below:

• Predatory lenders: It’s a dog-eat-dog world out there, and, sadly, predatory lenders love to prey on businesses in need of financing with bad credit. That’s why it’s crucial to be cautious of any lender that guarantees approvals and pressures you to sign quickly. You also need to watch for lenders who avoid giving you clear answers about rates, pricing, terms, and requirements.
• Factor rates vs. APR: Some Canadian lenders in the alternative financing sector use factor rates rather than APR. At first glance, this can make costs appear lower than they really are. This is why you must always ask for the total repayment amount and how remittances work.
• Early repayment terms: You might see that a lender is offering early repayment terms and see this as a boon, but it might not be as big a benefit as you’re expecting. This is because, with some loans, repaying early can result in fixed fees, minimum charges, and limited repayment benefits. So, always ask what happens if you want to repay ahead of schedule before you do.

How to Start Rebuilding Business Credit

Although the financing options we shared can help you get your foot in the door, it’s important to build or begin rebuilding your business credit if your score is less than ideal. Usually, the easiest ways to do this are to pay your current obligations on time, reduce delinquencies, keep your credit utilization under control, and monitor your credit file.

If you remain consistent in these endeavors, you’re far more likely to see an improvement in your credit profile over time. Plus, even though past missed payments may remain on your profile for a time, if you can show you’re improving, your chances of being approved for business financing increase in the future.

The Wrap-Up On Bad Credit Business Loans in Canada

We’re not here to judge. We just want to inform you of the options available to you if you’re struggling to secure financing with bad credit. Hopefully, you can now make a better decision about which lending option best suits your business’s needs.
​So, if you have consistent revenue that speaks for itself, why not consider a merchant cash advance through Bizfund? Our MCAs are easy to apply for, and approval can be as little as one to two days. We also offer up to $300,000 and cater to most industries. If you want to learn more, you can contact us here.