How to Finance Your Business Through Payday Loans in Ontario
One of the most important, and at times most elusive, aspects of starting and running a business is figuring out how exactly you’re going to finance you venture both now and moving forward. Some Canadian entrepreneurs, of course, are lucky enough to have access to enough capital in hand already to cover the purchases associated with startup costs, even if they fall behind and need to make a business transaction in a pinch.
Most prospective business owners, however, don’t enjoy that luxury, and instead have to seek alternative funding methods to both get a business off the ground and keep it going. Fortunately for you and anyone else in need of financing for a business, the alternatives are plentiful.
Perhaps one of the more useful, and controversial, secondary options for financing your business is payday loans. These are typically readily available if proper documentation is provided on behalf of the borrower. If you’re an Ontario native, you may have access to quick online payday loans in Ontario at your convenience. If you live in another province, research your local options – there are likely some great vendors near you eager to help you begin your career as a full-time business owner.
But, as a business owner and entrepreneur, it’s part of your job to remain informed on what you’re getting into and where you and your business’s money are going. So, you should take a closer look at payday loans and their financial competitors.
What Exactly is a Payday Loan?
Payday loans are essentially a form of short-term loan made available far more quickly than other kinds of loans. Often times these loans are given to borrowers with bad credit or to those who are really in a pinch and in need of immediate cash. However, payday loans can be known to charge exorbitantly high interest rates as well. Imagine something along the lines of a few hundred percent APR (Annual Percentage Rate) on a few hundred-dollar loan. This is exponentially higher than your typical credit card APR, which may range anywhere from 15% to 25% or so.
Payday loans are often given by lenders who would qualify as predatory lenders, meaning they are seeking to take advantage of under-leveraged or desperate borrowers in situations of financial hardship. Knowing this makes it very important to pick a quality, fair payday loan lender whom you can trust.
Payday loans are most often a fraction of a person's next paycheck, which will be determined by providing pay stubs to the lender. In the case of a hopeful, growing business, they may ask for balance sheets and revenue reports or your own personal take home pay as the owner.
What are the Alternatives to Payday Loans?
The alternatives to payday loans include most of the kinds of loans that you would expect, but there are also a few others to note as well. They are listed as follows:
- Private Lender Business Loans
- Federal Business Loans
- Personal Loans
- Lines of Credit, Business or Personal
If you’ve never taken out a significant loan before, or you are only familiar with those relating to home ownership and car ownership, you are likely wondering what the differences between all of these are. Diving into the differences between the different types here:
- The most well-known alternative – for businesses, anyway – is perhaps business specific loans. Many countries, including Canada and the providence of Ontario, offer federal level programs that offer financial services and guaranteed loans for small businesses. Outside of this, private lenders often offer loans tailored for business operations as well.
- There’s also the option of taking out a line of credit, either as a personal loan or as a business loan. Which form you would end up taking likely depends on the size of your business, whether it’s well-established or not, and perhaps even what type of business it is you’re looking to start or have started. If it’s not yet incorporated or is a sole proprietorship of sorts, you may need to borrow on your personal finances rather than as a business loan.
- Personal loans are generally more straightforward and simpler to obtain than a business type loan, especially if you’re looking to apply for one from a government organization. Business loans will normally require a lot of documents to be submitted and review. This would include but not be limited to things like your sales, expenses, assets, liabilities, accounts receivable, number of employees, length of time in business, and even your personal credit history as well.
- Personal loans are just that, and one of the easiest types of loans to apply for if you comply with the documentation submission requirements and meet the criteria. Personal loans are also, more often than not, unsecured in nature. For those unfamiliar, an unsecured loan just means that you won’t have to put anything up for collateral were you to fail to repay the principle amount of the loan.
Educating Yourself and Evaluating Your Options Before Deciding
Having learned the basics of what payday loans are, their risks, what they require, and what the process may entail, you can now set about evaluating where you stand as a borrower and as a business. Comparing and contrasting payday loans with your alternatives can be tough to do if you’re in a tough spot and need a loan quickly, which is a viable reason to consider a payday loan. However, it’s still very important to do and to ultimately exercise your best judgement rather than making choices from a place of panic or desperation.
If you take all of the variables and relevant information into account and determine that a payday loan – or whatever other kind of loan you settle on – is the best choice for your business, that’s the first step. Now, you can go about getting everything together to apply for the loan and to select your source of financing.
Searching for the Right Lender and the Right Loan for Your Business’ Needs
When searching for the right source from which to obtain your loan for your business, there are several things to consider.
- Licensing of the Lender
- Transparency of the Lender
- Lender’s History in the Business
- Total Cost of the Loan, I.E. Interest Rate
- Length of the Loan
- And, Of Course, the Amount Needed
The majority of these variables can be determined by a simple visit to your prospective lender’s website. A payday lender should have listed on their website whether they are accredited and licensed to be doing business, and this assures you that they’re unlikely to be attempting to take advantage anyone through predatory lending practices.
You should also be able to discern how transparent the lender is with their policies and interest rates. Most countries, and it’s usually determined on a state or providence government level rather than national or federal, have legislation in regards to what payday lenders can legally charge clients on their APR. Check to see if your potential lender acknowledges this on their informational page, and they they’re not only complying with regulations, but that the rates are relatively competitive as well.
Borrowers should also look into the lender’s history. A few searches online should reveal the lender’s length of time in the business, relevant reviews from other borrowers like you, and perhaps even ownership and management if you feel the need to look that far. The most important aspects of this are obviously length of time in business and reviews from other borrowers. You may be wary of a payday lender that just opened a couple months ago, and rightfully so, or one that has some concerning reviews on other online platforms, or no reviews at all.
Also relevant to the lender’s transparency again, check their interest rate offerings. The amount you pay is also dependent upon how quickly they allow you to pay it back, of course, and if you’re allowed to pay down the principle balance or off entirely if you wish. This is important, because you don’t want to get locked into paying an insanely high amount in interest after your financial needs are over even though you already have the capital to pay off the loan.
Check how much capital you’ll have access to. You’ll likely be able to access this information by filling out a few fields and details in the lender’s online application portal without getting hit with a hard inquiry just yet. As mentioned, most payday lenders loans will be a portion of the borrower’s, which in your case is a business, next pay check or monthly revenue.
Ultimately, Be Prudent and Discerning When Dealing with Payday Loans and Lenders
Payday loans can be a slippery slope that put borrowers in a bad position if mishandled and not vetted properly. If you plan to make use of such funding for your business, it’s important to do your due diligence on all aforementioned aspects of the loans and the lending process that comes along with it.