People often find themselves in situations where they need to borrow money, whether for personal reasons or for business. In these cases, they may opt to take out a short term loan. Short term loans are loans with a length of typically one year or less. They are usually for small amounts of money and are paid back over time intervals shorter than other types of loans. Read on to find out how to find a short term loan in Canada that’s suitable for you!
Apply for Financing as Early as Possible
It’s important to apply for your short term loan as early as you possibly can. That means that you should apply for the loan before you have an urgent need for it. For individual use, loans are usually taken out in emergency situations so it may be hard to predict when such a loan will be needed but for business use, loans are usually taken out in advance for several reasons. They may cover project startup costs, be key to bridging a seasonal cash flow gap, or be used to pay for costs of emergency repairs for equipment that is critical to the business.
Being proactive in these situations is key as loans can sometimes take a bit of time to process due to the application and approval processes you have to go through before receiving the loan. The timespan of this process can range from a week to a month or two.
Prepare Financial Statements
If you are taking out a loan for your business, you must make sure that you have your business’ financial statements prepared for the lender to approve. You should compile all the financial statements that are relevant such as your balance sheets, income statement, and cash flow statement. When deciding whether to give out a loan or not, lenders tend to check your business’ financials for the past two years to decide whether your business is worthy of a loan and to determine whether you’ll be able to pay it back or not.
Choose a Lender
When finding a short-term loan, you must also decide which lender best suits you. Financial institutions such as banks offer loans but there are also private lenders who are willing to give out loans to people. Loan experts from iCash.ca recommend researching well before choosing your lender and also making sure that you will be able to pay back the loan in the agreed-upon time so that you aren’t put into debt. Getting loans from direct or private lenders is sometimes a good idea if you have a low credit score as they don’t usually set minimum credit scores for applicants. You should also make sure that your lender doesn’t seek advance payment from you to evaluate your financial history as this can cause problems in the long run.
Types of Short Term Loan
You must also decide on the type of short term loan you want to take out as several different types of short term loans exist. First of all, you should decide if your loan is going to be secured or unsecured. Unsecured loans act like credit cards as they lend you money without it being tied to assets you own. When taking out these loans, you are able to borrow from about $5,000 Canadian Dollars to tens of thousands of dollars. This type of loan is good for emergencies where you often need cash quickly and don’t want it to be tied to your car or home as a form of security.
On the other hand, secured loans such as Home Equity Line of Credit loans back up your loan by tying it to an asset such as your car or any other personal property. These are used as collateral in case you can’t pay your loan. Advantages of taking out secured loans include the fact that interest is significantly less than unsecured ones. They also allow you to borrow larger amounts of money than unsecured loans.
People with poor credit histories can also choose to borrow from private lenders as they often don’t evaluate people they lend to based on their credit history. Like loans from other financial institutions, they can be either unsecured or secured loans. The problem with borrowing from private lenders is that they can have high-interest rates (with rates sometimes up to 30 percent). Another type of loan people take out are payday loans which are short-term loans with high fees and higher interest rates than the previous types. The current credit limit for a payday loan is $1,500 Canadian dollars.
Taking out a short term loan is relatively simple once you’ve figured out what type of loan you want, prepared the financial statements, decided on the lender you want to borrow from, and applied for the financing. However, when taking out a short-term loan, it is important to note that one must always make sure that they are able to make the payments so they don’t end up in debt.