Small business operators, who tend to borrow in tranches of less than $100,000, have learned that banks don’t necessarily appreciate their business. The reason is that so much of the debt falls on the shoulders of the business owner, who may also be carrying other debts such as a mortgage, car payments, etc.
The risk profile is just too high for the reward (revenue generated) by small loans. So the Canadian government has stepped up over the years, guaranteeing substantial portions of small business loans, with the objective of assuring that banks will keep funds flowing to small businesses, to keep the economy moving along.
But banking competition is fierce, and the chase for profit is rooted in signing as many ‘big deals’ as possible – rarely is the route to the massive profit of the big banks realized by offering micro loans (under $100,000k).
Yet, that’s what the market needs.
While other players certainly have a role to serve the small business sector, the growth is in alternate lenders.
These are companies – consulting firms, fintechs, and others, who offer simple small business loans, that are easy to apply-for, easy to qualify-for, and easy to repay.
The approval process is generally programmatic, and based on a combination of average monthly sales (which needs verification), age of the company (a minimum of 6 months is required), and some basic ID verifications – enough to get funds advanced within 24 hours.
How can these businesses make a go of it?
They focus less on collateral and more on sales – and often take a portion of sales or receivables to finance the loan amount. While the interest rate is generally higher than the banks, the tradeoff is access and speed-to-funds.
There’s no shortage of non-bank lenders (we provide the service as well).