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LOW INTEREST BDC LOANS FOR SMALL BUSINESSES

March 12, 2020 10:47 pm Published by Leave your thoughts

The Business Development Bank of Canada (BDC) is a financial institution founded in 1944 that is wholly owned by the government of Canada, providing financial and consulting services to small and medium-sized Canadian businesses. It describes itself as the only Canadian bank devoted entirely to the needs of entrepreneurs, supporting small and medium-sized businesses (SMEs) in all industries and at every stage of growth with money and advice.

Although the BDC provides its services to all small business, it focuses on the technology and exporting industries in particular. The BDC’s vision as stated on their website is “to make a unique and significant contribution to the success of dynamic and innovative entrepreneurship in Canada.” The BDC also provides Canada-specific economic analysis and research to its clients and the greater public.

The BDC helps small businesses by extending them loans and working capital financing, as well as advisory services providing practical solutions and objective advice to help growing businesses successfully address a wide range of challenges and opportunities. Seed stage companies are additionally helped through a venture capital (VC) arm, which focuses primarily on information technology, healthcare & biotech, and clean/green energy startups located in Canada.

BDC offers loans and advisory services with a focus on small and medium-sized companies. It reports to Parliament through the Minister of Innovation, Science and Economic Development.

BDC Capital, a subsidiary of BDC, offers specialized financing, including venture capital, equity as well as growth and business transition capital.

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BDC’s Venture Capital arm makes strategic investments in Canadian companies through its Energy/Cleantech Fund, Healthcare Fund and IT Fund. Notable investments include GradeSlamQ1 Labs, Radian6, Canopy LabsD-Wave Systems, and Klipfolio Dashboard.

BDC is a complementary lender, offering commercial loans and investments that fill out or complete services available from private-sector financial institutions. It also provides advice to businesses through its advisory services division. 

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Low-Interest BDC Small Business Loans: Where to Start

Business loans with low-interest rates are almost always longer-term business loans. This means that, while low-interest business loans might be more affordable in the short term, they aren’t necessarily “cheap” or low-cost business loans.

With less frequent and lower payments, long-term loans with low interest rates will be easier to pay back and cause less of a strain on your business’s cash flow than shorter-term loans with higher interest rates.

Many business owners assume that BDC loans are low-interest loans for small businesses that come directly from the BDC. While the first part of this is true, the BDC is merely guaranteeing low-interest small business loans from an BDC-approved lender.

The BDC guarantees a large portion of the funds—around 85% of the loan amount—which ultimately allows them to have the best interest rates for business loans.

This is great news for small business owners looking for a low-interest rate business loan. The BDC’s guarantee removes most of the lender’s risk in lending to a small business. If for some reason, you can’t pay the loan back, the lender still gets the guaranteed portion back from the BDC.

As a result, small businesses gain increased access to desirable, low interest rates on business loans, even if they’re not perfectly qualified. However, these desirable rates and terms mean BDC loans are highly competitive.

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Qualifying for an SBA Loan

While the BDC’s guarantee helps make these low-interest business loans more accessible, they’re by no means easy to qualify for. 

That said, they’re still among the best of the best when it comes to small business financing. For this reason, only very qualified borrowers will have BDC loans open to them.

Typical BDC-qualified borrowers have at least two years of business history under their belt, at least a 620 credit score (although a 680 credit score is better), and at least $100,000 in annual revenue.

Low-Interest Business Loan Requirements

If you’re new to the world of small business funding, then it’s easy to jump into a search for a business loan assuming you’ll find the lowest interest rates on the market. In reality, it’s not always so simple.

The rates and terms of a business loan come down to two things: the details of the business applying for the loan, and the details of the loan itself.

Personal Credit Score

Your personal credit score will play an important role in your business loan application and, as a result, in whether you qualify for low-interest business loans.

Time in Business

A company’s time in business also has a large impact on what interest rates it can qualify for. It’s a simple but important credential. 

Industry

Another aspect of your business that lenders will look at is your business’s industry.

This factor is pretty simple: Some industries are just riskier than others.

Accessibility of the Loan

Most low-interest small business loans, like bank loans or BDC loans, have a longer timeline for application and approvals than other loans.

Term Length of the Loan

While it doesn’t make or break a low-interest business loan versus a high-interest one, the term of the loan will impact your rates. Generally speaking, the lowest-interest business loans will come with the longest terms. This is because of the cost of capital vs. APR issue we covered earlier—long-term business loans with low interest are the only way for business owners to afford the cost of capital attached to paying off debt for years.

To be eligible for BDC financial support when your business is at the start-up phase, you must demonstrate realistic market and sales potential, possess experience or expertise in your field, provide personal or credit references, demonstrate a reasonable investment of financial resources and provide a solid business 

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