Many Canadian businesses have come to learn a hard lesson over the past few years — when economic times are tough, banks are often missing in action.
As companies struggle with unpredictable cash flow and sudden revenue drops — only to be followed by even more sudden ramp-ups to meet demand — securing the working capital and equipment financing needed frequently stretches beyond the limits of the traditional bank.
And when big banks hinder business growth with inflexible financing structures, many small businesses look for alternatives.
Independent or alternative lending refers to opportunities businesses have to secure capital or financing without going through traditional lending institutions like banks or credit unions.
And while the number of businesses choosing to work with an independent lender is on the rise, there are still some common misconceptions and misunderstandings about how it works.
So let’s take a look at the top 5 myths about independent lending.
Independent Lending is Only for Businesses Deep in Debt
Independent lending is actually for anyone seeking to access capital quickly, flexibly, and with terms tailored to your business cycles.
While strategic debt restructuring is an important offering of independent lenders, independent lending is ideal for many types of business, including:
- New businesses with limited financial history.
- Seasonal businesses who need flexible lending terms that match their cash flow.
- Businesses in “growth mode” who require quick access to capital or equipment to meet demand.
- Businesses in a recovery phase whose past financial statements are hindering their ability to secure loans.
- Businesses with equity in their assets who can benefit from reducing monthly payments by adjusting the terms of their debt repayment.
The reality is that businesses of all sizes and sectors and with a wide range of goals choose to work with independent lenders.
Independent Lending Costs More
While independent lending rates typically are structured differently than traditional banks, it’s also important to look at the full picture.
When it comes to assessing cost, business owners should consider:
- Their time – delays and lengthy processing times cost money.
- Hidden fees – rock bottom rates with hidden fees such as steep payout penalties can be costly.
- Where they’re carrying debt – for example, if you’re carrying a balance on your credit card but worried about interest rates on a loan, you’re missing the bigger picture.
- The lending terms – if the terms of the loan don’t match your cash flow and business cycles, you will struggle to make payments.
The Independent Lending Industry in Canada isn’t Regulated
Because independent lenders operate independently of banks, many people mistakenly believe this means they aren’t regulated.
While independent lenders work differently than banks, they are still subject to federal and provincial laws and contract law regulations in Canada.
You Can Only Find Financial Expertise at a Bank
This is simply not true. In fact, one of the things customers appreciate most about working with an independent lender is the personalized financial advice they offer.
A good independent lender will think like a partner in your business. They focus on building a relationship with you so they can understand your unique challenges and opportunities to design custom solutions ideal for your needs.
After all, independent lenders succeed when your business succeeds, so it’s in their best interest to offer you the best financial advice.
Not Many Businesses Work With Independent Lenders
In reality, the independent lending industry in Canada is growing in a big way. The sector is estimated to reach over $100 billion by 2025.
Particularly in a resource-based economy like Canada’s, where market prices and seasonal changes impact business, financial ups and downs are inevitable. So, access to fast, flexible credit will continue to be popular with Canadian companies.
Ultimately, independent lending is growing because it meets the real business needs of Canadians. As our economy grows and evolves, independent lenders will continue to be an essential alternative to traditional banks.
For over 35 years, Essex Lease Financial has been leading the way for independent lending in Canada. We are the trusted alternative to big banks for businesses from all sectors and with all kinds of different needs and goals.
Wherever you are in your business journey, we’re here to get you the working capital you need to succeed.
Get in touch with us today to learn more or get started.