Business Financing Glossary for Canada

What is an alternative lender?

An alternative lender is a non-bank company that provides business financing, such as an online lender or a private lender. Alternative lenders typically decide faster and use broader criteria than banks, often looking at revenue and cash flow as well as credit, in exchange for a higher cost.

What is loan amortization?

Amortization is how a loan is paid down over time through regular payments that each cover interest and part of the principal. Early payments are mostly interest; later ones reduce the balance faster. A longer amortization lowers each payment but raises the total interest paid.

What is asset-based financing?

Asset-based financing lets a business borrow against what it already owns, such as equipment, accounts receivable, inventory or commercial real estate. The lender advances a percentage of the assets’ value, so it can suit businesses with strong assets but modest cash flow.

What is a business line of credit?

A business line of credit is a revolving credit limit: you borrow what you need, repay it, and borrow again, paying interest only on the balance you use. It suits ongoing swings in cash flow better than a one-time purchase, which a term loan handles better.

What is a business loan broker?

A business loan broker is an intermediary that compares offers from several lenders for a business instead of lending its own money. It is usually paid by the lender when a loan funds. lendflo is a broker: it is free for business owners and paid by lenders.

What is a business term loan?

A business term loan is a lump sum that you repay with interest over a fixed period, usually in regular monthly payments. It suits planned, one-time investments such as expansion or hiring. Through lendflo, term loans run from $25,000 to $2,000,000, with repayment terms of up to 60 months.

What is the Canada Small Business Financing Program?

The Canada Small Business Financing Program (CSBFP) is a federal program that helps small businesses get loans by sharing the lender’s risk with the government. The loans come from participating banks and credit unions. Eligibility, limits and uses are set by Innovation, Science and Economic Development Canada, so check its page for current terms.

ISED: Canada Small Business Financing Program

What is capital cost allowance?

Capital cost allowance (CCA) is the way the Canada Revenue Agency lets a business deduct the cost of equipment and other depreciable assets over several years instead of all at once. Financed equipment typically qualifies. Rates and rules vary by asset class, so confirm with your accountant.

CRA: claiming capital cost allowance

What is collateral?

Collateral is something of value, such as equipment, property or inventory, that a borrower pledges so the lender can claim it if the loan is not repaid. A loan backed by collateral is called secured; one that is not is called unsecured and relies on revenue and credit instead.

What is equipment financing?

Equipment financing is a loan or lease used to buy business equipment such as vehicles, machinery or technology. The equipment itself usually serves as the lender’s security, which makes approval easier and can keep the down payment low. Through lendflo it runs from $10,000 to $500,000, with terms up to 84 months.

What is a factor rate?

A factor rate is a multiplier used to price some short-term financing, such as a merchant cash advance. You multiply the amount advanced by the factor to get the total you repay: at a factor rate of 1.3, a $50,000 advance costs $65,000 to repay. It is not an annual interest rate.

What is invoice financing?

Invoice financing, also called accounts receivable financing, lets you borrow against unpaid customer invoices while you keep collecting from your customers. In factoring, you sell the invoices instead, and the factor collects the payment. Both release cash that would otherwise wait 30 to 90 days.

What are leasehold improvements?

Leasehold improvements are changes a tenant makes to a rented space, such as walls, flooring, lighting and fixtures. Some financing can cover them, but they usually stay with the building when the lease ends, so lenders look at them differently from movable equipment.

What is a merchant cash advance?

A merchant cash advance gives a business a lump sum that it repays through a share of its daily card sales plus a fixed fee. It is fast, but the fixed fee often makes it more expensive than a term loan, so compare the total amount repaid before you accept.

What is a personal guarantee?

A personal guarantee is a promise by a business owner to repay a business loan from personal assets if the business cannot. Lenders often ask for one from newer or smaller businesses. Whether one is required depends on the lender and the product, so read the offer before you sign.

What is business debt refinancing?

Refinancing means replacing existing debt with a new loan, often to combine several debts into one payment or to change the terms. It makes sense only if the new loan’s total cost is lower than what you pay today, so compare the total repayment before you switch.

What is revenue-based financing?

Revenue-based financing is funding repaid as a percentage of monthly revenue instead of a fixed monthly payment. Payments are lower in slow months and higher in busy ones, which suits businesses whose income rises and falls with the season.

What is a soft credit check?

A soft credit check, or soft inquiry, lets a lender look at your credit file without affecting your credit score. A hard inquiry, usually made when you proceed with a lender’s final application, can lower the score slightly. lendflo’s initial review uses a soft check.

What is the total cost of borrowing?

The total cost of borrowing is everything you pay on top of the amount you borrow, including interest and fees. The annual percentage rate (APR) expresses that cost as a yearly percentage so offers can be compared. Always compare the total amount repaid, not only the interest rate.

What is an unsecured business loan?

An unsecured business loan is a loan that does not require you to pledge specific assets as collateral. Lenders decide mainly on revenue, cash flow and credit instead. Because the lender takes more risk, the cost can be higher than for a secured loan, and a personal guarantee may still be requested.

What is working capital?

Working capital is the cash a business uses for day-to-day costs such as payroll, rent, inventory and supplier bills. A working capital loan bridges the gap between paying those costs and getting paid by customers. Through lendflo it is based mainly on recent revenue rather than collateral.