The smallest businesses have the hardest time getting business loans according to a new Canadian Federation of Independent Businesses (CFIB) report that also found many small business owners are using their own personal credit cards as additional sources of financing.
Nearly half of Canada’s small businesses have applied for some form of financing in recent years but it’s the smallest of firms (those with fewer than five employees) are nearly six times as likely to be rejected for a loan than mid-size firms (50-499 employees).
The report explores the financing efforts of small businesses between 2012 and 2015. Banks, naturally, are usually the first destination when seeking credit but the CFIB’s report reveals how companies struggle to fill in the gaps after being denied for a bank loan.
Alternative finance – online lenders – is a solution to the lack of bank financing but according to the CFIB, only 0.1 percent of the small businesses surveyed said they had used financing tools like crowdfunding to finance their business (it is unclear whether the research includes marketplace lending sites and alternative finance players under the term “crowdfunding”). Instead, nearly a third (30 percent) said they use credit cards to fill in their financing gaps.
Read the report here – http://www.cfib-fcei.ca/cfib-documents/rr3412.pdf
There are a lot of reasons why the banks are turning down so many small businesses.Among others….
- Your business is too new
- Your loan request is too small
- Your loan request is for working capital – not a fixed asset
- Your personal credit score is weak
- Your business hasn’t been profitable long enough
And the main reason the banks turn down small business loan requests? They can’t make money on a small loan.
Alternative lenders, like Company Capital, are filling the gap left by the banks. Most online lenders only require you to be in business 6 months and can provide loans as small as $5,000. They also lend money for any business purpose – new employees, marketing, or just getting caught up on bills. Most online lenders will check your personal credit score but it doesn’t disqualify you if it’s weak.
Here’s a previous article regarding online business loans and different examples of why they are a good alternative to the bank in some situations.
http://www.companycapital.ca/2016/09/online-small-business-loan/
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The following steps that will help you to qualify small business loans.
1.Build credit scores.
2.Know the lender’s qualifications and requirements.
3.Gather financial and legal documents.
4.Develop a strong business plan.
5.Provide collateral
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