Searching for the right business loan? You don’t necessarily have to borrow from a big bank.
Non-bank lenders provide businesses with added flexibility and less strict eligibility requirements. They also offer a wide range of business financing options and, in some cases, a simple online application process with fast access to funds.
So if you need a loan, keep reading to find out where and how to get a non-bank business loan in Canada.
Compare non-bank business loans from these online lenders
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Where can I get a non-bank business loan?
There are several non-bank lenders to consider before applying for a business loan:
Online lenders. Online lenders provide access to a wide range of business financing products. While they tend to have smaller maximum loan amounts than major banks, they also have more lenient eligibility criteria. These lenders usually process your application using algorithms and automated processes, so they can offer faster approval and funding than banks. Learn about online private lenders of business loans.
Peer-to-peer (P2P) lenders. Peer-to-peer platforms connect business owners with investors who fund the loan and collect the interest payments. From the borrower’s perspective, they work a lot like online loans but may have a longer turnaround time.
Credit unions. Some definitions of non-bank lenders include credit unions, others don’t. Credit unions are owned by their members and can often be more flexible than banks when it comes to business requirements. But they have some of the pitfalls of borrowing from a bank, like a slow turnaround time. Credit unions also offer government-backed Canada Small Business Financing Program (CSBFP) loans.
Business loan broker. While technically not a lender, a business loan broker can help you compare loan offers from multiple lenders, find a lender with suitable terms and submit an application.
Crowdfunding. Crowdfunding platforms provide an alternative financing option for startups, allowing you to raise funds from a large group of people.
What types of non-bank business loans are available?
The main types of business loans you can choose from include:
Unsecured business loans. These loans don’t require you to attach assets as security for your lender. They’re usually fixed-term loans with predictable repayment schedules.
Secured business loans. Secured loans require you to attach assets as collateral for your lender. One common type of secured business loan is a business equity loan which uses the equity you own in a property as security. Providing collateral reduces the risk for the lender, so you can generally access higher loan amounts and lower rates than with unsecured loans.
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. You only pay interest on the money you use, not the full credit limit. As you pay back money you borrow, you regain access to your full limit. Business lines of credit can be secured or unsecured.
Merchant cash advances. A merchant cash advance provides a lump sum payment in exchange for a percentage of your business’ future debit and credit card sales. However, these advances tend to come with higher rates and fees than traditional loans.
Equipment finance. Equipment loans provide access to a lump sum amount that you can use to purchase essential business equipment. The equipment you purchase then acts as collateral for the loan until you pay back what you borrow.
Working capital loans, asset-based financing, commercial mortgages and other types of financing are also available.
Pros and cons of non-bank business loans
Pros
Lenient eligibility criteria. Non-bank lenders generally have less strict loan eligibility criteria compared to banks. Some lenders offer loans for businesses as little as six months old, and non-bank business loans tend to have lower revenue requirements than bank loans.
Wide range of loans and lenders. You’ll find a wide range of small business loans from non-bank lenders, with funding available for all credit types and industries.
Easy application process. It’s often quick and easy to apply for a non-bank business loan online.
Fast access to funds. While processing times vary between lenders, online lenders typically offer faster loan approval and funding than banks.
Cons
Cost. You may have a higher interest rate on a non-bank business loan than with a traditional bank loan.
Lower loan limits. While some non-bank lenders offer loans of up to several hundreds of thousands of dollars, they typically have lower maximum loan amounts than banks.
Less peace of mind. For some businesses, borrowing from a large, established bank provides added stability and peace of mind. It can also be more convenient if you do all your day-to-day business banking with the same bank.
Watch out for scams. You’ll need to research any lender thoroughly before applying to make sure they’re legitimate. Learn more about business loans scams.
How to find the best non-bank business loan for you
There is no single “best” business loan on the market. The right loan for your business will depend on your financial situation and needs, so keep the following in mind when comparing your options:
Calculate how much you can borrow. Don’t just think of this in terms of how much money your business needs, but also how much you can realistically afford to repay. Make sure you won’t be taking on too much debt.
Research and compare lenders. Compare non-bank business lenders that offer the loan type and amount you want. Check what their eligibility requirements are, and research their bona fides and read customer reviews on independent websites to determine whether the lender is above board.
Interest rate and fees. Find out what interest rate applies to the loan as well as any fees you’ll have to pay. Check the APR to get a better idea of how much the loan will cost and how it compares to other options. Learn more about business loan rates.
Secured or unsecured. Will you need to provide an asset as collateral for the loan? Secured loans tend to have higher loan amounts and lower interest rates than unsecured loans.
Repayment schedule and flexibility. Can the repayment schedule be tailored to suit your business’ cash flow? And if you repay the loan ahead of schedule, will you be charged an extra fee?
Am I eligible for a non-bank business loan?
The requirements you’ll need to meet vary depending on the lender and the type of loan you’re applying for. But as a general rule you will need to:
Be the age of majority in your province or territory
Have a business based in Canada
Meet minimum monthly or annual revenue requirements
Meet minimum time in business requirements (6 months is a common minimum, but other lenders have higher requirements)
Meet business and personal credit score requirements
Provide a business plan and financial statements
Provide suitable asset(s) as collateral (if applying for a secured loan)
Have a Canadian business bank account
When you’ve found a lender that meets your needs, check their website for a list of eligibility criteria before applying.
You can get a non-bank business loan by completing the following steps:
Compare lenders and loans. Research lenders, the types of loans they offer, their eligibility criteria and how much you can borrow.
Apply for pre-approval. Once you’ve found suitable lenders, applying for pre-approval allows you to get an idea of the loan amount and rate you can qualify for without submitting a full application.
Choose a loan. Find the best loan offer and submit a full application. You’ll need to provide your business plan, financial statements and projections, and any other paperwork the lender requires.
Undergo a credit check. The lender may need to check your personal and business credit reports before approving your application.
Review and sign the loan contract. When you receive your loan contract, double-check all details carefully before signing and getting funded.
Are non-bank lenders regulated?
Non-bank lenders are not regulated by the Bank Act, the federal legislation regulating Canadian banks. However, this doesn’t mean that non-bank lenders are completely unregulated. In fact, Canada has a network of organizations and laws overseeing all aspects of the financial sector. These include:
Financial Consumer Agency of Canada.
This agency regulates all federally incorporated or registered trust and loan companies and federal credit unions – among other organizations – to ensure that Canada’s financial laws are being followed and to enforce disciplinary measures when necessary.
The Office of the Superintendent of Financial Institutions.
This body oversees federally incorporated or registered trust and loan companies, cooperative credit associations and pension plans, among other things. While not directly managing how financial institutions operate, its job is to ensure that sound financial practices are followed by helping to develop accounting standards, working with troubled financial institutions and monitoring external conditions that might have a bearing on the health and safety of financial organizations in Canada.
Financial Transactions Reports Analysis Centre of Canada (FINTRAC).
FINTRAC detects and prevents money laundering and terrorism financing. Working together with other law enforcement agencies, FINTRAC develops standards to securely and legally process money transactions in Canada. Financial institutions must comply with these standards.
The Canadian Payments Act.
The (CPA) lays out the legal framework for how payments are to be handled by Payments Canada, which oversees the clearinghouse and settlement system that handles electronic monetary transactions between financial systems, for example, wire transfers and e-transfers.
Deposit Insurance organizations.
The CDIC insures deposits in bank accounts up to $100,000, however, most credit union and non-bank lenders are not CDIC members. All credit unions, though, insure deposits through provincial organizations like the Deposit Insurance Corporation of Ontario and the Credit Union Deposit Insurance Corporation of B.C. Sometimes these corporations offer even more coverage than the CDIC does. See a complete list of provincial credit union insurers here.
Bottom line
If you need a business loan, you don’t necessarily need to apply with a Big Five bank. Non-bank lenders can offer fast approvals and funding, less strict eligibility criteria and more flexibility than bank loans. But they can also have lower maximum loan amounts and higher interest rates than banks in some cases, so make sure to compare a range of business lending options before deciding where to apply.
Frequently asked questions
There are many legitimate non-bank lenders in Canada that offer a wide range of business financing options. You'll need to research any lender you're thinking of applying with to make sure they're reputable. Check customer reviews on independent websites like Trustpilot, check whether the lender has a physical office address and working contact details, and look for other hallmarks of legitimacy such as Better Business Bureau accreditation or being a Canadian Lenders Association certified lender.
Non-bank lenders are typically privately-owned institutions that don't hold a banking licence. They tend to offer faster loan funding and more lenient eligibility criteria than traditional lenders like banks. However, they tend to have lower maximum loan amounts than banks. Whether or not you'll get a lower rate from a bank or non-bank lender will depend on your business' financial situation.
No. Be wary of any lender that promises guaranteed loan approval. A reputable lender will need to assess your business' financial situation before deciding whether you can afford to repay a loan.
If this happens, you won't be forced to suddenly repay your entire balance, but you'll likely be obligated to continue making payments normally — just to another provider. Your original loan terms usually won't change, because your lender will have simply sold its loans to another lender who will continue overseeing the debt.
Tim Falk is a freelance writer for Finder. Over the course of his 15-year writing career, he has reported on a wide range of personal finance topics. Whether you're investing in stocks and ETFs, comparing savings accounts or choosing a credit card, Tim wants to make it easier for you to understand. When he’s not staring at his computer, you can usually find him exploring the great outdoors. See full bio
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