Compare business loans for consulting companies

As the owner of a consulting company, it’s your job to stay on the cutting edge of business trends, and with such a fast-growing industry, you need the flexibility to face new challenges every day. Whether it’s to jet across the country for a client, move to a bigger office space or pay for a new marketing campaign, financing can help you cover the upfront costs while you wait for the money to roll in.

What loan options are available for consulting companies?

Business term loans

Your business can use general business loans for consulting company needs, like a marketing campaign or buying software for your team. Lenders usually offer up to $1.5 million, sometimes more, with interest rates sitting between 5.00% - 39.99%.

Business line of credit

A business line of credit works similarly to a credit card, offering flexible access to funds but with higher limits, lower APRs and longer repayment periods. It’s designed to cover ongoing and one-time expenses, such as managing payroll during low periods or bridging gaps in client payments. You typically only pay interest on the amount you actually borrow, not the full credit limit. Rates range from 4.95% to 39.99%.

Invoice factoring

Sitting on some big invoices from large companies? Those can often take up to two months to go through. Invoice factoring lets you access those funds early by selling the invoices to a third party for a percentage of their value, usually around 70% to 90% plus a fee of around 1–6%.

Invoice financing

Like invoice factoring, this option gets you access to your client’s invoices to fund overhead costs or a new project. But instead of selling them off, invoice financing lets you borrow against your firm’s invoices and repay them. However, you may not get the full amount of your invoices, as some lenders only offer up to 95% of your invoices’ value in addition to a daily, weekly, monthly or one-time fee.

Merchant cash advance

This option gets you an advance on future client payments. Your lender multiplies your loan by what’s called a factor rate, usually between 1.1 to 1.5, which you pay back through automatic withdrawals from your business bank account when the money comes in. Learn more about merchant cash advances.

Commercial mortgages

Need a new office? Commercial mortgages can help break up the cost of moving to a new space to impress prospective clients or expand your business. Interest rates range from 3.00% to 6.85% depending on factors like the payment term, whether it’s a fixed or variable rate, the perceived risk and down payment.

Equipment financing

The cost of computers and other high-tech office equipment that your firm needs to operate can add up quickly. An equipment loan or lease can help you cover the cost of these items, but they’re often backed with the products as collateral, which means you can lose your equipment should you default on your repayments. Interest rates for equipment financing can be lower than a term loan, but they typically range from 5% to 20%.

How do I decide which type of financing is best for my consulting business?

Determine how much you need and why

First, figure out how much you need to borrow and what it’s for. Need funds for overhead expenses if a payment gets delayed? Come up with an estimate of how much you might need. This will help you narrow your search by loan type and amount offered.

Check your business’s eligibility

Banks can have stricter eligibility requirements than nontraditional lenders, and if you’re applying for a large amount of funds, your business will need to bring in a high amount of revenue each month. You might have trouble qualifying if your firm is less than a year old or doesn’t have a positive cash flow.

Compare costs across lenders

Once you’ve found a few lenders you’re eligible for, compare the costs. For factoring and financing, this means comparing fees, while for loans, you’ll want to look at the APR, which is a representation of the loan’s interest and fees as a percentage.

Understand repayment terms

Your APR and loan term determine two things: your monthly repayments and your total loan cost. Longer terms lower your monthly repayments but increase the total cost. You might want to go for the shortest monthly repayment your firm can afford to lessen the overall interest that you’ll pay.

What common expenses can I cover with a business loan?

Getting the word out about your business and keeping up with technology are essential to consulting firms, but hiring and keeping talented team members is often the top expense. Let’s take a look at some costs you can cover with a business loan.

• Marketing. It’s difficult to bring in new clients if nobody knows about you—word of mouth only goes so far. Taking out a term loan to pay for a one-time marketing campaign or using a line of credit to cover multiple projects can pay for itself over time.
• Hiring staff and payroll. Expert consultants expect to be paid well, and your company needs to foot those costs if it wants to bring on the best talent out there. Use your loan for consulting business payroll needs, such as adding a new member to the group or making sure everyone gets paid on time.
• Technology. Regardless of your area of expertise, you’re going to need technology to do your job well. An equipment loan can help you with the hardware, while a term loan can cover software costs.
• Working capital. Typically, consulting contracts come with a 30- or 60-day payment clause, meaning you might not have the funds to fuel your projects right away. On top of this, the first three months of the year are slow for most businesses. Lines of credit, invoice factoring and invoice financing can help you keep the lights on when things get slow or backed up.
• Renovating. Your office is part of your company’s brand. Redecorating alone can help seal the deal when you bring new clients into your trendy and fresh office space.
• Moving or expanding. Few consulting firms have the money upfront to move to a ritzy postcode. Commercial mortgages can help your business afford a move and hopefully attract bigger clients.
• Professional development and certifications. To stay up-to-date with your industry, you can use financing to cover the cost of certifications, leadership training or continuing education.

What do I need to apply?

While it varies, most lenders ask for the following documents and information:

• Bank statements. Almost all lenders ask to see your business’s most recent bank statements to get an idea of its cash flow.
• Tax returns. Some lenders will only view your business’s tax returns, while others will want to see your personal tax returns as well.
• A business plan. Banks usually ask to see a business plan — or at least the financial projections section — and some online lenders want to see it as well.
• Your company’s unpaid invoices. This generally only applies to invoice financing or factoring, but you might want to provide these with other types of financing to show that you’ll have funds coming in soon.
• Your credit score. Some lenders look at your business’s credit score, but most lenders will look at your personal score instead.
• Identification. Most lenders ask for a copy of government-issued ID, such as a passport or driver’s licence, for all owners and guarantors of the business.
• Legal documents. Lenders may ask for copies of legal documents like your business licence, partnership agreements or articles of incorporation.

Compare business loans for consulting companies

What challenges might I face getting a business loan?

Here are some common challenges consulting firms face when applying for a business loan:

• No physical collateral: It can be harder to secure some loans without tangible assets to back your loan, like equipment or inventory.
• Irregular or limited revenue: Lenders often look at your revenue to determine whether you’re eligible for a business loan. If you don’t generate consistent income, you may be seen as a higher risk.
• Young business age: Lenders generally like to work with businesses that are firmly established, as it’s a lower risk. If you’ve been in business for less than two years, you may face limited financing options, higher interest rates or stricter eligibility requirements.
• Limited business credit history: Many consultants start solo and don’t build business credit, which can hinder their ability to secure financing. To avoid this, register your business and strengthen its credit as soon as possible.

Can I get a business loan for my consulting firm with bad credit?

Yes, but depending on how bad your credit is, you may not qualify for a business loan with a bank or credit union. Instead, consider government grants, nonprofit lenders and alternative lenders. You may qualify for secured loans that use personal or business assets as collateral, merchant cash advances or business credit cards.

Can I get a business loan for my startup consulting business?

Yes, you can get a business loan for your startup consulting business, but your options will be more limited compared to established businesses. The good news is there are Canadian programs and lenders that specialize in supporting new entrepreneurs, such as:

• The Canada Small Business Financing Program (CSBFP)
• Futurpreneur Canada
• The Business Development Bank of Canada (BDC)

You can also apply to alternative lenders. They have more flexible requirements than financial institutions.

5 industry tips to run a successful consulting firm

1. Stay the expert. Stay on top of trends, regulations and technology so you can give expert advice to clients. You also might want to set aside funds to give you and your employees regular training on new topics.
2. Become a master at time management. Take on as much work as your employees can comfortably manage. To do this, you need to know how much time your employees spend on different types of projects.
3. Don’t be afraid to say no. Take on too many projects and you’ll underdeliver. Saying no can not only build your reputation, but it also gives your firm an air of exclusivity that might bring in higher-end clients.
4. Recognize ruts. It’s tempting to stick to tried-and-true techniques, but your company’s job is to be creative and innovative. While some old-school tricks have been around so long for a reason, you’ll lose your freshness if you stick to only what you know.
5. Plant seeds. Know your ideal client and make yourself known to them by getting involved in the community. Engage in online conversations, make sure your website and social media speak to their needs, and go to networking events whenever possible.

How much does it cost to start a consulting firm?

Consulting firms are generally less expensive than other types of businesses, with startup costs between $2,000 and $10,000, though the exact cost depends on several factors. Your expenses may include:

• Business name registration: $60–$80
• Federal incorporation: $200
• Provincial/territorial incorporation: $200–$450
• Office space: $15.40–$20.14 per square foot
• Equipment: $1,500–$2,500
• Initial marketing: 5%–10% of your gross revenue
• Insurance: $400–$1,000 annually

Bottom line

When you rely on invoices, your consulting business might not have enough money upfront to cover everyday costs. Plus, growing your business requires even more money. Business financing can help cover both of these costs, though it isn’t free. To learn more about how business loans work and to get started on your search for a lender, visit our guide to business loans here.

To make sure you get accurate and helpful information, this guide has been edited by Leanne Escobal as part of our fact-checking process.

Written by

Rebecca Low

Writer

Rebecca Low is a writer for Finder. She has contributed to a range of digital publications, including income.ca, Indeed, and Expatden, writing on topics like personal finance, career development, and travel. See full bio