Loans on Business

Explore flexible business loan options at Mehmi Financial Group. Learn about term loans, lines of credit, invoice financing, and equipment financing.

7 minutes

Written by

Alec Whitten

Published on

May 31, 2025

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Capital is essential for the survival and growth of any business. Whether you’re launching a new venture, expanding operations, or managing short-term cash flow gaps, a business loan can provide the boost you need. In today’s competitive environment, having quick access to funds—especially for small and medium-sized enterprises—is often crucial.

At Mehmi Financial Group, we offer tailored financing solutions across Canada, including term loans, lines of credit, equipment financing, and invoice financing. This guide walks you through the most common business loan types, how they work, and step-by-step instructions on how to apply.

Business Loan Types

1. Term Loans

Term loans provide a lump-sum amount that you repay, with interest, over a fixed period—typically ranging from under one year up to 25 years. They are ideal for one-time, large expenses such as:

Expanding your operations or opening a new location
Purchasing real estate or equipment
Covering large marketing campaigns

Key Features:

Fixed repayment schedule: Predictable monthly or quarterly payments.
Flexible terms: Short-term (less than 1 year), medium-term (1–3 years), or long-term (up to 25 years).
Ownership: Once paid off, the funds can be used for any business purpose without restrictions.

Considerations:

Credit requirements: Lenders often prefer a business credit score above 75 and a personal credit score above 650.
Collateral: May require assets—such as property or equipment—to secure the loan.

2. Business Lines of Credit

Think of a business line of credit as your company’s revolving credit card. The lender sets a maximum credit limit, and you can draw funds as needed, only paying interest on the amount you use. Lines of credit work well for managing:

Short-term cash flow gaps: Covering payroll, rent, or inventory restocking.
Seasonal fluctuations: Adjust borrowing during slow months and pay down during peak sales.
Unexpected expenses: Handling emergency repairs or urgent supplier invoices.

Key Features:

Revolving access: Repay principal and redraw up to your limit.
Interest on funds drawn: You’re only charged on the balance you owe.
Flexibility: Funds can be used for virtually any business need.

Considerations:

Variable rates: Interest may fluctuate with prime rates.
Renewal requirements: Lenders often review financials annually to maintain the line.

3. Invoice Financing (Factoring)

Waiting 30–90 days for customers to pay invoices can stall your cash flow. With invoice financing, you sell your outstanding invoices to a factor (a specialized lender) at a small discount. The factor advances you up to 90% of the invoice value immediately, and the remainder (minus fees) once the customer pays.

Key Features:

Quick access to cash: Receive funds within 24–48 hours after invoice approval.
Off-balance-sheet financing: Since you’re selling receivables, it doesn’t count as debt on your balance sheet.
No fixed repayment schedule: You don’t repay; the factor collects directly from your customer.

Considerations:

Factoring fees: Typically range from 1% to 5% of each invoice value, depending on volume and customer creditworthiness.
Customer relationship: Some factors notify customers directly, which may require communication about the arrangement.

4. Equipment Financing

If your business relies on machinery, vehicles, or technology, equipment financing allows you to purchase those assets by borrowing against their value. The financed equipment itself serves as collateral, making approval easier if you have a solid down payment.

Key Features:

Ownership at term-end: Once you finish payments (typically 1–5 years), the equipment is yours.
Fixed or variable terms: Choose a repayment schedule that aligns with equipment depreciation.
Tax deductions: Claim Capital Cost Allowance (CCA) and interest payments as business expenses.

Considerations:

Down payment: Many lenders require 10–20% upfront, depending on credit and equipment age.
Maintenance and insurance: Lenders often require proof of regular servicing and coverage to protect the collateral.

5. Vendor Financing

Some equipment manufacturers or dealers offer vendor financing directly at the point of sale. These programs may include promotional rates or special payment terms negotiated by the vendor.

Key Features:

Streamlined purchasing: Apply and finalize both equipment purchase and financing in one place.
Promotional incentives: Deferred payments, 0% introductory rates, or bundled maintenance packages.

Considerations:

Limited choice: You may be restricted to specific makes or models that qualify for vendor offers.
Post-promo rates: After any introductory period, rates may revert to higher standard terms.

How to Apply for a Business Loan

Applying for a business loan can seem complex, but breaking it down step by step makes the process straightforward:

Step 1: Determine Your Needs

Purpose: Decide exactly why you need funds—expansion, equipment, working capital, etc.
Amount: Calculate how much you require, factoring in down payments, interest, and fees.
Loan Type: Match your goal to the right financing solution (term loan, line of credit, factoring, or equipment financing).

Step 2: Check Your Credit Scores

Business Credit Score: Aim for a score above 75 to secure favourable rates.
Personal Credit Score: If you’re a sole proprietor or small business, lenders often review your personal credit. A score above 650 helps you qualify for better terms.
Review Reports: Obtain your free credit reports from Equifax and TransUnion to correct any errors before applying.

Step 3: Gather Required Documentation

Lenders typically request:

Business Registration Documents: Articles of incorporation, partnership agreement, or business license.
Financial Statements:
- Balance Sheet and Profit & Loss Statement (last 12 months).
- Business Bank Statements (last 3–6 months).
- Accounts Payable/Receivable Summary, if applicable.
Tax Returns: Personal and business returns for the last two years.
Identification: Government-issued photo ID (driver’s license or passport) and Social Insurance Number (SIN) for credit checks.
Equipment or Invoice Details (if applicable): For equipment financing, provide invoices or quotes. For invoice financing, submit copies of the outstanding invoices.

Step 4: Compare Lenders and Pre-Qualify

Online Lenders & Fintech: Fast approvals—often within 24–48 hours; credit scores as low as 600 accepted; rates typically range from 8–25% APR.
Credit Unions & Community Banks: Approvals in 3–5 business days; preferred credit score 650+; rates typically 6–12% APR with flexible payment options.
Traditional Banks: Approvals in 1–2 weeks; preferred credit score 680+; rates can be as low as 5–9% APR for well-qualified applicants.

Pre-qualify online to view estimated rates and terms without impacting your credit score. At Mehmi Financial Group, we can help you compare multiple offers quickly.

Step 5: Submit a Complete Application

Accurate Information: Fill out the lender’s online or paper application fully and accurately.
Document Upload: Label each PDF or scan clearly (e.g., “2024_Tax_Return.pdf,” “Balance_Sheet.pdf”).
Business Plan (If Needed): A concise 1–2 page summary explaining how you’ll use funds and repay the loan bolsters your case—especially for startups or challenged credit profiles.

Step 6: Respond to Follow-Up Requests

Monitor Communications: Lenders may request additional financial statements, proof of insurance, or clarifications on revenues.
Timely Replies: Aim to provide requested documents within 24–48 hours to keep the process moving quickly.

Step 7: Review and Sign the Loan Agreement

Confirm Terms: Ensure the loan amount, interest rate (APR), repayment schedule, and fees match your pre-approval.
Check Fees & Penalties: Look for origination fees, late-payment charges, and prepayment penalties.
Sign Electronically: Many lenders offer e-signature for rapid processing.

Step 8: Receive Funds and Implement Your Plan

Disbursement: Funds usually deposit into your business account within 1–3 business days. In the case of invoice financing, the factor advances funds as soon as invoices are approved.
Execute Your Strategy: Use funds strictly for the stated purpose—whether it’s purchasing equipment, covering payroll, or expanding your location. Keeping clear records helps if the lender requests verification.

FAQ for Business Loans

1. What paperwork is required to submit a business loan application?

Business registration or Articles of Incorporation
Last 3–6 months of business bank statements
Balance sheet and Profit & Loss statement (last 12 months)
Personal and business tax returns (last two years)
Government-issued ID (driver’s license or passport) and SIN
Equipment invoices or outstanding invoices (for equipment or invoice financing)

2. What credit score do I need for a business loan?

Term Loans & Lines of Credit: 650+ for best rates; some lenders accept scores down to 600 at higher APRs.
Invoice Financing: Typically 600+; factors focus on the creditworthiness of your customers rather than your score.
Equipment Financing: 650+ preferred; a larger down payment can compensate for lower credit.

3. Can a business with poor credit still get a loan?
Yes. Lenders specializing in fair-credit programs may approve loans for scores as low as 600, though rates tend to be higher (10–25% APR). Providing a larger down payment, a co-signer, or detailed financial projections can improve your chances.

4. What types of financing are available for businesses?

Term Loans: Lump-sum funds repaid over a fixed term.
Lines of Credit: Revolving credit for ongoing working capital needs.
Invoice Financing (Factoring): Borrow against unpaid invoices to accelerate cash flow.
Equipment Financing: Loans or leases secured by heavy machinery, vehicles, or technology.
Vendor Financing: Direct financing programs offered by equipment dealers at the point of sale.

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If you’re ready to secure the capital your business needs—whether it’s for expansion, equipment purchases, or working capital—contact Mehmi Financial Group for a free consultation. We partner with over 30 lenders across Canada to find the most competitive rates and terms for your unique situation.