Get a loan for your startup.

Personal startup loans:

Many founders whose businesses have a limited operating history choose a personal loan to fund their business. This is the kind of loan LowestRates.ca can help you get. There are two categories of startup loans you can apply for.

Personal loans for business: In some cases, it may be possible to apply for a personal loan to use for your startup. This option is common among early-stage founders who have just launched their own company and have limited operating history, as well as sole proprietors (such as freelance writers, artists, bookkeepers, or home based business owners).

Using a personal loan for your startup business means that your personal finances will impact your chances of approval. Your credit score, income, outstanding debts and any previous bankruptcies will be taken into account. Lastly, your debt will be secured through your own personal assets. A personal startup loan can also be a good option for startups with few fixed assets (think real estate or pieces of equipment), such as an internet business.

Business credit card: Some founders choose to use a credit card to cover expenses when their companies are in the early stages. While this may be one of the easiest forms of credit to access during this time , it’s also important to be aware of the risks. For example, you may wind up paying higher interest rates than you would for a personal startup loan and your personal credit score could be impacted if your business falls on hard times.

Business loans for startups

Founders whose businesses are large enough to qualify may apply for a business loan rather than a personal loan. This means that the debt is insured through the businesses’ assets, building, equipment, and accounts receivables, for example..

Line of credit: A line of credit is one example of a business loan, which allows founders to borrow as much as they need whenever they want, up to a predetermined limit. A line of credit is secured by inventory and the company’s accounts receivable and banks can usually demand full repayment at any time.

Term business loan: Term loans are often designed to be given to the borrower in one lump sum and then repaid at regular (usually monthly) installments over a predetermined period of time. Term loans are usually used to finance fixed assets, such as factories, machinery, or equipment.

Working capital loan: Where a term loan deals with long-held assets, a working capital loan deals with the day-to-day. This type of loan can be used to fund the daily operations of the company, from inventory purchasing, to marketing, to producing web content about startup loans.

Personal loan for a startup business:

Advantages:

• A cheaper way to borrow than a business loan.
• Can be quicker to obtain.
• If you have good personal credit, a personal loan can be easier to access.

Disadvantages:

• A personal loan means you’re not building commercial credit.
• Lending limits for personal loans tend to be lower than business loans.
• Personal liability.

Business Loan for a startup:

Advantages:

• Building commercial credit.
• Keeping business and personal finances separate can help keep you organized, especially when tax season comes around.
• Lending limits on a business loan are usually higher.

Disadvantages:

• You’ll likely need to incorporate to qualify for a personal loan. Some lenders can provide business loans to sole proprietors, but it’s less common.
• Longer wait time for approval.
• Startups can have a hard time qualifying for business loans due to a lack of operating history or revenue.

Whether you’re applying for a personal loan or a traditional business loan to finance your startup, there are a few steps you should take to increase your chances of being approved and ensure you’re offered the best rate possible.

Step 1: Prepare a business plan and financial projections - The first step in applying for a loan with your bank or financial institution is to prepare a business plan, including statistics and data, to demonstrate that your project is low risk. This should include financial projections for a few years down the line. Try to estimate your cash flow, total revenue and balance sheet as accurately as you can. Your plan should include your own investment and collateral for the loan

Step 2: Check your credit history - How you’ve handled your debt in the past may factor into how bankers view your loan application today. You can improve your credit score by paying your bills on time, keeping your credit use rates low, separating business and personal finances where possible, and avoiding debt collection and bankruptcy.

Step 3: Shop around - Different banks offer a range of loan products and it’s important to read the fine print. LowestRates.ca can help streamline the process for founders applying for personal loans by comparing a number of different offers in just a few minutes.

Length of the repayment term: The longer your loan term, the higher the borrowing costs will be. With longer loan terms, you’ll make smaller monthly payments but you’ll wind up paying more in interest. It’s up to you to decide whether it’s worth it to take on the extra expense.

How much your lender is willing to finance: Different lenders offer different products, and some may decide to finance a larger portion of your project than others. This may also determine whether you should work with a second lender.

Repayment flexibility: Some lenders will be more lenient when it comes to your repayment schedule, and depending on the size and cash flow of your business, this flexibility may be invaluable in tough times.

Government grants: A number of federal and provincial government grants are available to businesses that meet certain criteria. If the grant is used under the agreed-upon terms, it doesn’t need to be repaid.

Venture capital: This is a type of financing provided by firms that exist to fund promising, early-stage companies. VC firms purchase a stake in an entrepreneur’s idea and provide funding and resources to help that idea turn into a profitable business, and then exits after a period of time. In return, the VC firm will either be given equity in the company or will be owed debt.

Angel investors: These are typically wealthy individuals who directly finance small firms. They usually make small investments while offering guidance, mentorship and a network to help the business thrive.

Microloan: These types of loans are designed specifically for brand new businesses who need less funding. Some organizations that provide microfinancing include: Western Economic Diversification Canada, Seed Capital Initiative in Atlantic Canada and The Social Innovation Zone in Ontario.