Short Term Business Loans: Funding for Canadian Companies | 7 Park Avenue Financial

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ACCESSING SHORT TERM DEBT AND WORKING CAPITAL

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Financing & Cash flow are the biggest issues facing business today

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7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8

 

 

 

 

Short Term Business Loans

  

 

Short-term business loans are a type of financing designed to provide small businesses with quick access to business capital to cover immediate expenses, overcome challenges, or seize new opportunities.

 

These loans typically have a shorter repayment period, ranging from a few months to a year. They often finance working capital costs, manage cash flow, or cover unexpected expenses.

 

Short-term loans can be a lifeline for small businesses. A small business loan necessary funds to keep operations running smoothly and seize growth opportunities without the long-term commitment of traditional loans.

 

 

Quick Capital: Your Business Emergency Fund

 

Canadian businesses often face unexpected expenses or opportunities requiring immediate funding. Without quick access to capital, you might miss crucial growth opportunities or struggle with operational continuity.

 

Let the  7 Park Avenue Financial team show you how Short term business loans provide the rapid financial support needed to maintain business momentum and capitalize on time-sensitive opportunities.

 

 

2  Uncommon Takes On Short  Term Loans

 

• Integration of short-term loans with supplier early payment discounts can transform these loans into profit center -
• Combining short-term loans with invoice factoring can create a hybrid financing strategy for optimal working capital management

 

 

Types of Short-Term Business Loans

 

There are several types of short-term business loans available, each catering to different business needs:

 

• Line of Credit: This revolving credit line allows businesses to borrow and repay funds as needed. It’s ideal for managing cash flow fluctuations and covering short-term expenses.

• Term Loans: These are lump sum loans with a fixed repayment term, often used for business expansion, marketing campaigns, or equipment purchases. They provide a predictable repayment schedule, making budgeting easier.

• Invoice Financing: This type of loan allows businesses to borrow against outstanding invoices. It’s an excellent option for companies that need immediate cash flow but are waiting on customer payments.

• Merchant Cash Advance: This loan provides businesses with lump sum payments of cash in exchange for a percentage of future credit card sales. It benefits companies with high credit card transaction volumes, offering quick access to funds without traditional collateral and an accelerated loan application process -  Companies  without credit card sales can also be funded

 

 

Benefits of Short-Term Business Loans

 

Short-term business loans offer several benefits to small businesses, including:

 

• Quick Access to Capital: These loans can provide businesses with the funds to cover immediate expenses or swiftly seize new opportunities.

• Flexibility: Short-term loans can be used for various purposes, such as managing cash flow, financing working capital costs, or covering unexpected expenses.

• Competitive Interest Rates: Despite their shorter duration, many short-term loans come with competitive interest rates, making them a cost-effective option for businesses.

• Easy Application Process: Many short-term loan providers offer a streamlined application process, allowing businesses to secure the funds they need quickly and with minimal hassle.

 

 

Understanding Debt Financing in Canada

 

Debt financing in Canada, whether short-term loans, asset financing, or other traditional and alternative forms of short-term financing, requires a solid understanding of who's involved and what's involved. Let's dig in.

 

 

Debt Financing with Options

 

Business owners and financial managers feel a lot more comfortable taking on debt (versus raising equity) when they understand they have negotiating ability while recognizing that debt comes with terms and other requirements, as well as long-term debt obligations, especially when it involves bank loans.

 

The Debt Versus Equity Question

 

 

As we have noted, debt is the opposite of equity, which is your other form of capital.

 

While no one form of financing is always perfect, debt finance via short-term loans has significant advantages. The bottom line is that using debt properly allows the owner/manager to grow the company with appropriate leverage without giving up ownership through equity dilution.

 

 

Focus on Repayment Ability and Cash Flow

 

 

Another advantage of looking at a debt solution is that there is always an end in sight via repayment and cash flow assessment. The bottom line is you can plan on retiring debt much more quickly than an equity takeout.

 

 

Understanding Key Financial Ratios and Covenants

 

One solid way for the business owner/financial manager to assess debt asset finance solutions is to assess them from the point of view of restrictions—i.e., what they can and can't do by utilizing the covenants and ratio requirements that come with any single form of debt, such as a senior term loan with a bank.

 

 

Investigating Alternative Financing Solutions

 

We're big supporters of hybrid-type solutions. One good example is asset-based lines of credit that may or may not contain a term loan component.

 

While you do take on debt, you also have corresponding assets such as inventory, equipment, and accounts receivable that offset the entire obligation and help you fund accounts payable and other short-term obligations typically due within one year or less.

 

 

The Role of Hybrid Financing

 

Some owners might even agree to a small equity component in a debt deal that makes sense for their business. In corporate terms, this is known as a warrant/option. In most alternative finance solutions, financing the balance sheet is the key.

 

Larger Companies and Their Financing Options

 

Larger companies have access to numerous other tools, such as commercial paper, commanding, of course, the best interest rate. Their business operations and credit ratings allow them to easily access traditional financing at the lowest cost.

 

Secured Loans Versus Unsecured Financing

 

Debt financing can be either secured or unsecured. Whatever the case, it will always come down to your historical, present, and projected cash flow.

 

Cash flow is often key in a bank or commercial finance company's decision to grant business credit.

 

 

The Importance of Credit Quality

 

If debt is unsecured, ownership/management must prove good credit quality.

 

Unfortunately, unsecured debt is typically only achieved by firms with strong cash flow, clean balance sheets, and healthy profits. The best interest rates are obtained when your balance sheet and cash flow demonstrate the ability to service debt.

 

 

Three Ways to Ensure Approval of Debt Financing

 

 

Canadian firms that can accurately demonstrate and project sales, asset quality, and turnover of current assets are always in a better position to take on any form of business debt.

 

Lenders will make their own assumptions about the quality of your overall business credit situation.

 

 

How to Apply for a Short Term Business Loan

 

Applying for a short-term business loan is a relatively straightforward process. Here are the steps to follow:

1. Check Your Eligibility: Review the lender’s requirements and ensure your business meets the minimum criteria.

2. Gather Required Documents: Lenders typically require financial statements, business tax returns, and identification documents.

3. Choose a Lender: Research and compare different lenders to find the best option for your business.

4. Apply Online: Most lenders offer an online application process that can be completed in minutes.

5. Receive a Decision: The lender will review your application and provide a decision, often within a few hours or days.

6. Review and Sign the Agreement: If approved, review the loan agreement carefully and sign it to receive the funds.

 

 

Remember to carefully review the loan's terms and conditions, including the interest rate, repayment terms, and any fees associated with it.

 

It’s also important to understand the lender’s credit check policy and how it may affect your business’s credit score. By being well-prepared and informed, you can secure the best financing for your business needs.

 

Avoiding Common Financing Mistakes

 

If we had to identify one mistake our clients often made, they chased the wrong financing sources for the type of long-term debt, working capital, or asset monetization they need. This false business start can be expensive and time-consuming when searching for unrealistic equity financing possibilities.

 

Case Study:

 

Toronto-based retailer faced a sudden opportunity to purchase discounted inventory worth $100,000. Using a short-term business loan, they secured funding within 48 hours, purchased the inventory at a 40% discount, and generated $180,000 in sales within 60 days.

 

The quick access to capital resulted in a 80% ROI, demonstrating the power of timely financing.

 

 

Key Takeaways

 

 

• Understanding loan terms and repayment schedules drives successful financing outcomes.

• Revenue requirements typically matter more than credit scores for approval

• Demonstrating strong cash flow patterns increases approval chances significantly

• Speed of funding often correlates directly with interest rates

• Daily weekly and monthly repayment options affect business cash management for short term working capital loans such as merchant advances

 

 

Conclusion

 

Do you want to identify the best types of long-term debt financing via a short-term loan or other methods of business finance?

 

Call 7 Park Avenue  Financial, a trusted, credible, and experienced Canadian business financing advisor who can assist you with your finances.

 

 

 

 

FAQ

 

What documentation do I need to apply?

 

Most lenders require:

• 6 months of bank statements

• 2 years of tax returns

• Business financial statements

 

 

What credit score is needed for approval?

 

Minimum credit score requirements typically range from 650 to 680, though some alternative lenders may accept lower scores with strong revenue.

 

 

 

 

How do short-term business loans improve cash flow management?

• Provides immediate working capital

• Bridges seasonal revenue gaps

• Enables bulk inventory purchases

• Supports payroll during growth phases

• Facilitates emergency repairs or upgrades

 

 

What makes short-term business loans better than traditional financing?

• Faster approval process and minimum requirements compared to traditional financing solutions

• Simpler application requirements

• More flexible use of funds

• Shorter commitment period

• Lower total interest paid

 

 

What types of businesses benefit most from short-term funding?

• Seasonal operations

• Retail establishments

• Construction companies

• Service providers

• Manufacturing facilities

 

 

 

 

What exactly defines a short-term business loan?

• Typically, 3-18 month terms

• Fixed or variable interest rates

• Daily or weekly payments

• Usually under $250,000

• Minimal paperwork required

 

 

Will applying affect my credit score?

• Soft pulls for initial qualification

• Hard inquiry only at final approval

• Multiple applications within 30 days count as one

• Business credit is separate from personal

• Regular payments can improve scores

 

 

How do short term loan interest rates compare to traditional loans?

• Generally higher APR

• A shorter term reduces the total interest paid

• Daily or weekly payment options

• Factor rates vs traditional interest

• Faster approval justifies the premium

 

 

What documentation speeds up the approval process?

• Updated financial statements

• Recent bank statements

• Tax returns

• Business plan

• Revenue projections