5 Bad Credit Small Business Financing & Startup Loans in Canada

One comment I often hear from business owners when they reach out to us is “I don’t have the money to expand or scale“. This is where loans or grants can be helpful. I always recommend that businesses check out the government’s Business Benefits Finder to see if they can qualify for a grant first. You’ll know in minutes if you can qualify for a grant. If not, then you can look into financing or loan options. In this post, I’ll be specifically covering where to get small business or startup loans if you are struggling with bad credit. Let’s get started:

1. Alternative Lenders: Look Beyond Traditional Banks

Some popular small business lenders that do accept bad credit scores you can look into include:

1. Swoop Funding
   • URL: www.SwoopFunding.co
   • Financing Amounts: $5,000 to 1 million (Larger loans available for bigger businesses)
   • Funding time: 24h to 72h.
   • Types of Loans: working capital loans, lines of credit, merchant cash advances (MCA), equipment loans, startup loans, and more.
2. LoansCanada.ca (Broker working with 50+ lenders to find you the best rates)
   • URL: www.loanscanada.ca
   • Financing Amounts: $5,000 to $300,000
   • Funding time: 24h to 72h
   • Types of Loans: working capital loans, lines of credit, merchant cash advances (MCA), startup loans, and more.
3. Journey Capital
   • URL: www.journeycapital.ca
   • Financing Amounts: $5,000 to $300,000
   • Funding time: 24h to 72h
   • Types of Loans: working capital loans, lines of credit, merchant cash advances (MCA), startup loans, and more.

Let’s face it—big banks are tough on credit requirements. If your credit score isn’t at least 650 or higher, most banks will pass on your application, no matter how successful your business is. But here’s the good news: the alternative lenders covered above don’t stick to the same rigid rules. Some accept credit scores as low as 530. Instead of relying solely on your credit score, they focus on factors like monthly revenue or credit card sales, which might give you a better shot at getting approved.

For instance, some alternative lenders offer what’s called a Merchant Cash Advance. This works by giving you a lump sum based on your average monthly credit card sales, and you repay a percentage of your daily or weekly sales. This can be a lifesaver if your income fluctuates month to month, as your repayments adjust with your cash flow.

2. Term Loans

If you’re looking for something a bit more traditional but still flexible, a term loan could be a good fit. These loans give you a fixed amount upfront that you pay back over time, usually with predictable monthly or weekly payments. The good news is that alternative lenders offering term loans, like Swoop Funding or Driven.ca, are often more interested in your business revenue than your credit score. They want to see that you’re bringing in consistent income and that you’ve been operating for at least six months.

Even if your business isn’t perfect or you’re in a challenging industry, many of these lenders are more open to working with you as long as you can prove you’re generating revenue. So don’t be discouraged by a lower score—there are still paths to securing that much-needed capital.

3. Explore Loan Aggregators (for comparison)

To see different loan and financing options you may qualify for, consider using a loan aggregator like LoanConnect or Loans Canada which we’ve covered earlier. These platforms let you compare different lenders without hitting your credit with multiple hard inquiries. It’s a smart way to see all your options in one place and find a loan that matches your needs. Whether you’re looking for a small loan or something bigger, aggregators often have financing options starting from $500 all the way up to $500,000. And they cater to bad or average credit scores, which gives you more flexibility.

4. Check Out Government-Backed Programs

Another route worth exploring is government-backed programs like the Canada Small Business Financing Program (CSBFP). We’ll cover these in more detail at the end of this article. Basically, the CSBFP program is designed to help businesses that need financing for big-ticket purchases like equipment or renovations. Even with a lower credit score, you might still qualify since the government shares the risk with financial institutions. This backing can make banks more willing to take a chance on you. You can apply for these loans through most banks and credit unions.

5. Understand the Costs and Repayment Structures

Here’s the catch with bad credit loans—they often come with higher interest rates and stricter repayment terms. Depending on your lender and situation, interest rates can range from 8% to 29%. Additionally, repayment schedules can be more frequent, like daily or weekly payments. This means you need to be mindful of how these payments will affect your day-to-day cash flow. Before signing anything, take the time to review the terms and make sure it fits within your budget.

Final Tips to Boost Your Chances

While securing financing with bad credit isn’t impossible, it does require a bit of prep work. Try these steps:

• Focus on Your Revenue: Highlight your average monthly sales and consistency. Lenders are more likely to approve your loan if they see a stable income stream.
• Consider a Larger Down Payment: If you can swing it, offering a higher down payment can lower the lender’s risk and improve your approval odds.
• Leverage Your Business Experience: Show lenders that you have the know-how to run a business, even if you’re new to the trucking or construction industry.
• Think About a Co-Signer: If you have a business partner or family member with good credit, a co-signer can help secure better terms.

In short, while bad credit may limit your options at traditional banks, there are plenty of other routes you can take to get the financing you need. By focusing on your business’s strengths and exploring alternative lending options, you’ll be better equipped to find a solution that fits your goals.

Government Resources for Small Business Financing

Here are some Canadian government resources you can explore if you’re looking for financing options for your small business or startup, even with bad credit:

1. Canada Small Business Financing Program (CSBFP)

The CSBFP is one of the most accessible government-backed programs for small business owners in Canada. This program helps businesses obtain loans from financial institutions by sharing the risk with lenders. The loans can be used to purchase equipment, renovate or improve leased properties, and even finance commercial vehicles. The program allows loans of up to $1 million, with a cap of $350,000 for equipment and leasehold improvements.

2. Business Development Bank of Canada (BDC)

The BDC offers flexible financing options for small businesses, including those with less-than-perfect credit. BDC specializes in providing loans that consider business viability and cash flow over credit score alone. They offer a range of solutions from working capital loans to equipment financing and even expansion loans

3. Regional Development Agencies (RDAs)

Canada has various Regional Development Agencies that provide targeted support based on the province or region you operate in. RDAs often have tailored programs that offer financial aid, including grants and low-interest loans. For example:

• Western Economic Diversification Canada (WD) in Western Canada
• Federal Economic Development Agency for Southern Ontario (FedDev Ontario)
• Atlantic Canada Opportunities Agency (ACOA) in Atlantic Canada
• Check Your Local RDA: Regional Development Agencies

4. Canada Job Grant

If you’re planning on using financing to develop and train your staff, the Canada Job Grant offers funding to help cover training costs. While not a direct business loan, this grant can reduce training expenses if you plan to use a loan to grow your business.

5. Canada Emergency Business Account (CEBA)

Though CEBA was primarily launched as a pandemic relief measure, it provides an excellent example of how the government has supported small businesses in challenging times. The program offers interest-free loans and partial loan forgiveness if certain repayment criteria are met. Although new applications are closed, it’s still a good reference for understanding how the government supports small businesses during tough periods.

These resources offer various types of support to small business owners, even if you’re facing bad credit. Exploring these programs can help you find the right mix of loans and support for your business goals.