Alternative Lending in Canada: What to Consider

Many business owners in Canada know the challenges of attaining capital. Traditional banks continue to be the primary source for business loans, but their often inflexible financing structure can hinder growth. Additionally, younger startups and small businesses struggle to be considered for bank loans due to their size. As a result, many enterprises turn to alternative lenders in Canada to access the funds they need. Adaptable and efficient, alternative lending is an ideal solution for rapidly-growing enterprises.

What Is Alternative Lending?

Alternative lending provides capital to individuals or businesses without going through traditional lending institutions, like banks or credit unions. Typically, alternative lending is quicker, more flexible, and features a higher loan approval rate than bank financing. Borrowers with shorter track records and little collateral benefit from this type of financing in particular. Through alternative lending, businesses avoid the restrictions of bank loans and generally receive funds faster and with less effort.

Although some consumers in Canada may still be timid about alternative lending, its demand is increasing among startups and small businesses. This growth is partly due to support from financial regulatory bodies, such as the Ontario Securities Commission (OSC). In 2016, the OSC started the LaunchPad initiative to guide fintech startups in compliance measures and help them get their products to market. The following January, it created a Fintech Advisory Committee to discuss fintech-related developments and the regulatory challenges businesses face. From there, the OSC implemented a framework for future regulation guidelines. This paves the way to adoption for Canadian fintech startups that offer alternative lending services by ensuring they meet regulatory requirements, bringing confidence from potential borrowers.

Different Types of Alternative Lending

The value of alternative lending transactions in Canada is estimated to reach approximately CAD$108.5 million by 2025, indicating a steady increase in lending opportunities across the country. Different alternative finance companies deliver distinct forms of lending, including crowdfunding, tax credit & grant financing, invoice financing, and peer-to-peer loans. Several alternative lenders are available in Canada to suit your business’s needs.

Invoice/Receivable Financing

Small business owners with growing demands but insufficient funds to cover costs can benefit from receivable financing. Lenders who offer receivable financing options look at the reliability of customer payments over the business’s financial history. They extend a line of credit to the company, which can withdraw money at any time for a small fee. The charge is typically a percentage of the invoice upfront.

Peer-to-Peer Loans

Platforms that specialize in peer-to-peer lending in Canada arrange financings between borrowers and investors. With these platforms, business owners have access to several investors without needing extensive track records, and lenders use this opportunity to diversify their portfolios.

Equipment Lease Financing

Those who require new equipment to amplify production can benefit from equipment lease financing. This alternative lending practice provides funds that allow businesses to invest in new or used equipment that will fuel growth. Borrowers may also use this financing to obtain a sale-leaseback on previously purchased equipment. Lease financing can be risky, however, as company owners may lose the equipment if they do not repay their loans.

BDC’s Working Capital Financing

BDC’s working capital financing allows innovative enterprises to conduct growth projects without putting their cash at risk. Use this alternative lending to launch new market and product initiatives or improve profitability by paying suppliers upfront. Working capital financing can also complement existing lines of credit to help companies fulfill orders quickly.

SR&ED Tax Credit Loan

Canadian businesses that conduct research or investigations in a specific interest area are often entitled to Scientific Research and Experimental Development (SR&ED) Tax Credits. While many companies are eligible for these credits, it can take months before seeing deposits in the bank. With a tax credit loan, businesses receive immediate access to their accrued tax credit refund during the year their research and development (R&D) efforts occur. SR&ED financing benefits the company receiving the funds and the country as it fosters more R&D and advances innovation.

Alternative Lending with Easly

Canadian companies interested in alternative lending for their projects should look no further than Easly. With our Capital-as-a-Service tax incentive and grant financing platform, we ensure your SR&ED tax credits are available when you need them to continue your vital research and development efforts.

For more information about our financing choices, contact us today.