Key points
- Match the financing to the purpose: long-term assets with long-term debt, working capital with revolving credit.
- Government-supported programs can help where conventional lenders will not.
- Compare the total cost of borrowing, not just the rate.
The main options
| Product | Best for | Watch out for |
|---|---|---|
| Term loan | Equipment, expansion, acquisitions | Covenants, personal guarantees, prepayment terms |
| Operating line of credit | Seasonal and working-capital swings | Using it for long-term needs; annual reviews and margin requirements |
| Equipment lease | Vehicles, machinery, technology | Buy-out terms and the effective interest rate |
| Invoice discounting or factoring | Growth held back by slow-paying customers | Fees, recourse terms and customer notification |
| Canada Small Business Financing Program | Equipment, leaseholds and certain other costs, through participating lenders | Program fees and eligible-cost limits |
| BDC and other development lenders | Growth financing where banks are cautious | Higher rates than conventional bank loans |
| Merchant cash advance | Very short-term needs as a last resort | Very high effective cost |
Before you apply
- Have up-to-date, reconciled financial statements and a cash flow forecast.
- Make sure GST/HST, payroll and income tax filings and payments are current.
- Be clear on the amount, purpose and repayment source.
See also: What lenders look for in a financing package.
Official sources
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