The 5 Types Of Short Term Loans Canada
Applying for short term loans Canada is probably part of all Canadian businesses.
Short-term loans are usually obtained for a temporary business capital need. And, since they’re a form of credit, the borrowed capital plus the interest need to be repaid on a certain date.
They’re mainly used to finance operating expenses and other requirements. Start-ups and small businesses benefit from these since they’re not yet eligible for a credit line from the bank.
But, since these loans involve lower borrowed amounts, they’re also great for people with a sudden financial problem.
Planning to apply for this type of loan? In this post, we’ll talk more about short terms Canada—what they are and when you should apply.
Characteristics of Short Term Loans Canada
Short-term loans are called as such because of how quickly you need to pay them off. Normally, these terms need to be repaid within six months to a year upon application.
However, some short-term loans don’t specify a specific due date for repayment. The lender simply lets the borrower pay at his/her own pace.
Types of Short Term Loans Canada
Short-term loans can be divided into various types. They are the following:
Short term loans Canada: merchant cash advances
This is considered as a cash advance but still operates like a loan.
With this, you will loan the amount you need. The lender will then access your credit facility so you can make the loan payments.
When a customer purchases from you, a certain percentage of the sale is given to the lender.
Short term loans Canada: lines of credit
Think of these like using your business credit card. Once a credit limit is set, your business can tap into its line of credit as much as it needs to.
Monthly installment payments are made depending on the amount that was borrowed. It means the dues will vary according to how much of the line of credit was accessed.
Compared to business credit cards, an advantage of lines of credit is that they charge a lower Annual Percentage Rate (APR.)
Short term loans Canada: payday loans
These are emergency short-term loans that are very easy to obtain. You can even get a payday loan from a high-street lender!
Their con is that you should pay the loan amount, along with the interest, in one lump sum when your payday comes.
We usually do this using continuous payment authority. This is when we automatically take out the amount from your bank account (which you gave us access to.)
Short term loans Canada: installment or online loans
Getting a short-term loan is now very easy since everything can be done online. Simply log-in to the lender’s website, fill out the form, and you’re done!
The money will then be wired to your bank account minutes after your loan gets approved.
Short term loans Canada: invoice financing
This is done by using your business’ account receivables—or the invoices still unpaid by your customers.
The lender will loan the money and charge the interest depending on the weeks the invoices remain outstanding.
Once an invoice gets paid, the lender can first take the repayment on the loan (plus the interest) before returning what is due to your business.
When to Get Short Term Loans Canada
Below are situations where applying for a short-term loan is right for you:
Get Short Term Loans Canada if You Need Instant Cash
Short-term loans are seen as an emergency fund. However, you should also have the means to pay them back.
They’re a great way to get financing versus investing or applying for long-term loans since the application process and waiting time are quick.
Get Short Term Loans Canada if You Can Pay Them Off Within a Year
Compare purchasing supplies and paying your employees monthly to financing a research and development (R&D) project and buying a property to expand your business.
See the difference between a short-term and a long-term need? If you’re loaning for a business expense that won’t last more than a year, short-term loans are your best option.
Get Short Term Loans Canada if You Don’t Spend Too Much
Go for short-term loans if you can control how you spend. Since the funds are given instantly, you may spend your “easy” cash quicker than the time you worked to earn the money.
If you have trouble with your spending habit, getting short-term loans is a bad idea. It’s because you’ll only open an endless cycle of borrowing to pay off your debts.
So, as you can see, getting short term loans Canada isn’t that bad. Several short-term loan options are available, too, to accommodate your business’ needs.
As long as you pay on time and borrow within your limit, your business can greatly benefit from short-term loans in the long run.