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Compare non-bank business loans
Looking for better rates and more flexible terms on a business loan? See what non-bank lenders have to offer.
Non-bank lenders often provide businesses with added flexibility as they’re privately-owned institutions that aren’t subject to the confinements of a banking license. They also get their funding from numerous sources that offer better flexibility and options, making non-bank business loans increasingly preferable among Canadian businesses.
If you’re thinking about financing, limiting your options to regular banks could cost you. Your business deserves to know all the options available, especially if these options can provide you with better rates, fees, loan terms and even customer service.
At a glance: 3 things to know about getting a business loan from an alternative lender
- The number of alternative business lenders has grown considerably in recent years, giving you more choice than ever.
- These loans are usually unsecured and available for amounts up to around $300,000. Terms differ but are usually between 6 months and 5 years.
- To apply, you’ll need to meet minimum requirements (set by the lender) typically covering your annual turnover and how long you’ve been in business.
What types of non-bank business loans are available?
- Online direct lenders. These lenders usually process your application by using algorithms that work a lot faster than banks’ traditional underwriting process. They also typically consider alternative information like shipping records to help you qualify for a more competitive deal.
- Peer-to-peer (P2P) lenders. Peer-to-peer platforms connect business owners with investors who fund the loan and collect on the interest. From the borrower’s perspective, they work a lot like online direct loans, but have a longer turnaround.
- Business lines of credit. A business line of credit provides ongoing access to funds and allows you to withdraw funds up to a maximum limit. As you pay back the loan, you regain access to your full limit.
- Unsecured loan. This type of loan doesn’t require you to attach assets as security for your lender. It’s usually a fixed term loan with a predictable repayment schedule.
- Secured loan. This type of loan requires you to attach assets as security for your lender. It could be a term loan or a line of credit. One common type of secured business loan is a business equity loan which uses the equity you own in a property as security.
- Micro loans. These nonprofits often offer small-dollar financing to businesses that are just starting out, usually at a low cost. They typically also offer other services like free business training and support.
- Credit unions. Credit unions are owned by their members and can be more flexible when it comes to business requirements. But they have some of the pitfalls of borrowing from a bank, like a slow turnaround.
- Business loan broker. While technically not a lender, some business loan brokers can help you find a lender with suitable terms and submit an application. Using a service like this will cost you a fee, but it may be worth it if you’re having trouble finding financing.
Compare non-bank business loans from these online lenders
Pros and cons of borrowing from nonbank lenders
It can be easier to get a loan from an alternative lender than going to a bank. But there are some drawbacks — namely, the cost.
- Options for all credit types and industries
- Available for businesses as young as six months
- Low revenue requirements compared to bank loans
- Higher APRs than bank loans
- Potentially low funding amounts
- Not all lenders are transparent about costs
How to find the best non-bank business loan for you
There is no one “best” business loan on the market, as it will depend on your particular situation. However, keep the following in mind when comparing your options:
- Can my business afford it? As the most important factor in your decision making, be well aware of all loan costs as well as your repayment ability over the next few months.
- What’s the interest rate? Make sure you know the difference between fixed and variable interest rates and how they can impact your business. Also be cautious of variable interest rates that exceed your repayment ability.
- What’s the APR? This combines the loan’s interest rate, fees and other charges into one single percentage to help you better compare your options.
- What are the fees? Be aware of one-off fees such as application fees, exit fees and termination fees. Other charges include ongoing fees such as service and advance fees.
- How will I repay the loan? Lines of credit don’t have fixed repayment terms, but lump-sum term loans do and will usually cost you the loan amount plus interest over the loan’s term. Also keep in mind that lenders are usually more flexible with repayments for business loans than personal loans, so check your lender’s repayment terms before applying.
- Secured or unsecured? The difference between a secured and unsecured loan is huge, with one requiring you to put up assets as collateral for the lender while the other loan type has no collateral requirement (usually meaning higher rates). The right choice depends on your particular situation.
What should I avoid?
Nonbank lenders sometimes face fewer regulations as the law catches up to the new underwriting technology they use. Because of this, watch out for the following:
- Borrowing without comparing APRs. If a lender only discloses the cost as a flat fee, ask about the equivalent APR — often those loans are the most expensive.
- Hard credit checks to check your rate. Stay away from lenders that don’t allow you to get a ballpark estimate of your rate without running a hard credit check, which affects your credit score.
- Payments your business can’t handle. Daily or weekly repayments offer less flexibility and increase the likelihood that you’ll miss a payment and have to pay a fee.
- Taking on too much debt. Many of these lenders will offer financing to businesses that already have debt. If you have a loan, be sure you can handle another repayment before you apply.
- Brand new lenders. Nonbank lenders have to meet fewer requirements than a bank to open their virtual doors. Try sticking with a more established provider to avoid working with a lender that shutters its doors.
Frequently asked questions
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