Although Company Capital is in the small business financing industry, we only work in the short term world – short term being 12 months or less. Maybe our marketing programs aren’t specific enough because every day we get calls from business owners looking for financing to build another location, add more equipment, buy out a partner or some other “big ticket” item. For the business owner, these are long term (3-5 yrs) plans and therefore require long term financing.
Long term financing is best suited for “assets and projects” and in most cases generally comes from the bank or from equity financing – read about Shark Tank financing from a previous post.
Everyone knows the banks have made if difficult for the small business owner to qualify for a loan. If you haven’t had a track record of 5 years of profit you probably don’t qualify. Equity financing means giving up part of your business to some rich chump who will probably try to run your business for you. So, as a result of being denied by the bank and blowing off the equity financing idea, most people go back to Google and search for a small business loan – and find us.
Unfortunately we can’t help with long term requests. We’re all about short term (1 yr or less) contracts. Unlike long term financing that’s intended for assets and projects, short term financing is intended for day to day stuff – inventory, marketing, or just getting caught up on bills after a slow period.
Short term financing from a traditional lender (bank) is typically overdraft protection, a credit card, or a line of credit. Ironically though, these are sometimes more difficult to get approved than long term loans. On a long term loan the bank has your ass (ets) should anything go wrong. They can sell your assets and recover part of their money. On a short term loan, say, for example, the money they gave you was for inventory. If something goes wrong, the bank can seize your inventory – day old donuts or XXL parachute pants – depending on the type of business you have. The banks don’t want your inventory so they usually just say no to short term loans.
For short term financing the cheapest option is clearly the bank. They always have the lowest price but they always have the lowest approval rate. They specialize in zero percent financing (zero being the amount they give you)
The easiest option for short term financing is a merchant cash advance. Approval is based on the sales history of your business rather than your personal or corporate credit rating. The application process is simple – fill out a 2 page form, provide proof of your sales history and bank statements, verify you’re current with your landlord and Revenue Canada and Bob’s your uncle. Repayment is unique in the small business financing space – you pay daily based on a small percentage of your sales. Also unique is the fact there is no fixed payback period – you simply continue repaying until the total amount is complete – usually around 7-10 months. If you have a slow period you pay less. If you have a peak season you pay it off quicker. This type of financing is ideal for retailers who switch up their inventory a few times a year – clothing stores and hardware stores for example.
There’s about a dozen merchant cash advance companies in Canada. If’ you’re considering this type of small business loan alternative do your homework first – and always ask for customer referrals.