Image Credits: Freepik
Living has become so hard because of inflation, economic crisis, pandemic, politics, and regulations.
The volatile global market has severely impacted even a highly developed nation like Canada.
Finding good "financing substitutes" is your only alternative if you can't match the standard loan conditions like:
- A clean credit history
- Perfect Equifax credit score
- A reliable income
- Valuable collateral
The sole reason why new and even experienced business owners are shifting their funding scales from traditional banks to alternative mortgage lenders.
Are you looking for those too? Then, this guide is for you!
We've curated all the essential data about alternative lending, types of funding you can get, and some of the resources which can prove to be a good option for your company.
What Is Alternative Lending?
Image Credits: Pexels
Any loan, funding, or financing granted to a company or firm by a provider other than traditional Canadian banks is termed alternative lending.
It is ideal for individuals with bad credit as they can have a better chance of loan approval.
- Traditional Canadian banks are referred to as “A Lenders.”
- Alternative lenders in Canada are referred to as “B Lenders.”
Although the concept of alternative lending in Canada is not new, most people are still timid about it.
Here are some convincing reasons why new start-ups are inclined towards it:
- B lenders provide more flexible and consumer-friendly terms than A lenders.
- Alternative lending doesn’t demand good credit or a perfect finance rating from the applicant.
- The approval rate for an alternative loan is higher than a traditional bank.
Being rejected by a standard bank or lender should not stop you from buying a home in Canada or raising funds to expand your small business.
Agree? Of course, you do! ;)
So, let’s discuss some types of alternative lending with links to B lenders in Canada for times when you cannot meet the loan requirements of traditional banks.
Alternative Lending In Canada: Types Of Lenders
Image Credits: Unsplash
According to Statista, the total transaction value of Canadian B lending would reach approximately US $80m in 2022.
It implies that interest and trust in alternative lenders have been rising nationwide. Here are some alternative lenders you can find in Canada:
1. Non-Traditional Financial Institutions
As the name suggests, it’s the opposite of a traditional bank and comes with reasonable and flexible terms for the consumer with a bad credit score and history.
Here is an example of non-traditional financial institution for alternative lending:
- Plastk: Offers secured credit in Canada even with zero or no credit
You might also consider a non-traditional bank for the alternative funding:
- Tangerine: A direct bank with more than $40 billion in assets that offer no-fee accounts
Of course, the interest rates might vary but getting approved for non-traditional bank finance is easier than a traditional bank loan.
2. Private Lenders
Private lenders typically seek to invest their funds and profit from such investments through the interest borrowers pay on loans.
So, how do private lenders work in Canada?
You get money to pay for a house or renovate your house. After that, you repay the money you bought with interest over time. Some examples are:
- Street Capital Financial Corporation
- Home Capital Group
Note: Since they are not governed by any laws in Canada (mostly), private lenders are free to decide on their own rates and loan terms.
3. Credit Unions
Credit unions serve their members by providing competitive products with lower interests and fees than those offered by for-profit banks.
While credit unions collect fees and interest like a traditional bank, they reinvest their proceeds into the items they offer rather than giving them to their stockholders as banks do.
Bonus: Click to read more on the Canadian Credit Union Association.
Alternative Lending Options In Canada
Image Credits: Pexels
Not everyone has several passive income sources to multiply their money.
In fact, most business owners start with their personal finances and end up in debt after failing to get funds from the banks.
Here come alternative lenders to the rescue!
Various alternative lending firms offer different types of lending. Consider the following best-suited choices for your company:
1. Invoice Financing
If your business generates profit depending on the invoices, this alternative lending option can be the top pick!
In fact, any firm that lacks financing to continue the business can benefit from it.
- In other words, you can request an advance on a portion of your receivable accounts that falls between 75% to 85%.
- You receive fast payment from the lender in exchange for a small charge, typically an advance amount of the invoice.
Here are the recommended alternative lenders providing services of invoice financing in Canada:
Here watch a video to understand the concept better:
2. P2P Lending
P2P loans use a platform to connect lenders and borrowers.
These platforms give entrepreneurs access to various investors without requiring them to have long credit records.
The important thing is that lenders pick the borrowers they want to invest in, which allows them to diversify their interests.
Here are some B lenders offering peer-to-peer lending/crowdlending in Canada:
Let’s watch a short video to understand how it works:
3. Equipment Lease Funding
Equipment lease finance is advantageous for those that need new equipment to increase production.
This form of alternative lending offers money to businesses so they can buy new or used gear that will encourage product growth.
New businesses or start-ups can easily qualify for the equipment lease funding as it is usually “secured.”
- You must first submit your business model and the equipment you want to buy.
- The lender will then decide whether to approve or reject the loan.
- If accepted, the equipment serves as the loan's collateral, which lowers interest rates, thus making loan payments more manageable.
Here are some alternative lenders in Canada that provide the service:
Note: As the equipment works as collateral, the lender might confiscate the gear in case of ni repayments.
4. MicroFinancing
It is a type of non-traditional loan and targets people who need an adequate yet small amount of money for their business.
As the sum is almost trivial (as compared to big finances), microfinancing is not usually offered by traditional banks.
Business news daily explains that the standard loan is $13,000, but you can still get up to $50,000 from an alternative lender.
Here are some lenders that offer microfinancing to new start-ups, entrepreneurs, and business owners:
Notes: The terms and conditions to qualify for a microloan may vary from region to region and lender you are dealing with.
5. Line Of Credit
A typical bank will grant you a line of credit. That much is true! Can you, however, match their stringent criteria for having a good credit score range in Canada?
We assume that as you are reading this guide, thus the likelihood is that you answered "no." :p
No need to worry when you can apply and get a line of credit from an alternative lender that too on flexible terms!
- Every LOC (line of credit) has a fixed sum of money that can be withdrawn as needed, then repaid to borrow again.
- However, the alternative lender will decide the rate of interest, the size of installments, and other regulations for the LOC.
You can get the LOC from secured credit card companies or other online banks (digital banks).
FAQs
Let’s read answers to some commonly asked questions by YOU before ending the article:
1. Is alternative lending legal in Canada?
Yes!
Foreign lenders, often known as alternative lenders (non-traditional lenders, Credit Unions, private lenders), are free to lend additional money to Canadians without restrictions.
They may actually determine their own costs and lending terms because they are not subject to any Canadian rules.
2. What is an alternative lending fund?
Any loan activity that takes place outside of a conventional banking facility is referred to as alternative lending.
So, the finance acquired from it becomes an alternative lending fund.
3. How alternative lending in Canada works?
Alternative lenders work in a similar manner to traditional loan providers.
However, the former is quicker, more manageable, and more flexible than the latter.
Bottom Line
Gone are the days when business owners depended entirely on traditional banks to acquire additional funding for their companies.
Why? Because of the difficult eligibility criteria, banks have set for the applicants.
Thankfully, alternative lenders jumped in to help those consumers turned down by the bank.
If you’re also the one whose loan application was recently rejected, give this guide a read.
What you’ll get from this study?
- A basic concept of alternative lending options you can consider for your business!
- Links to multiple alternative lenders in Canada!
What more do you need?
