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Ontario government loans vs bank loans

Ontario government loans versus small business bank loans

As a small business in Ontario, having the right amount of capital can mean the difference between success and failure of your business.

In most cases, small business owners borrow money in order to use it towards the expenses and the various costs of starting up. This is a common practice by many entrepreneurs, using the borrowed money to grow and succeed with business.

As long as you are borrowing smart you have nothing to worry about.

While there are many different ways you can borrow money, today we’re going to be talking about borrowing money from the Ontario government, or the federal government of Canada, in comparison to borrowing money from a traditional bank in the form of a small business bank loan.

Money is money, but what may impact your small business are the conditions that are placed on the borrowed money. Knowing more about these conditions is what’s crucial to understanding and optimizing these funds.

Government loans for small business owners in Ontario

The Ontario government, along with the federal government of Canada provides government loans as well as many other different types of funding programs which small business owners may benefit from.

This money is given to business owners across Ontario in order to help boost the provincial economy through creation of jobs and taxes.

There are different types of government loans that you should be made aware of:

● Guaranteed government loans
● Low interest government loan
● No interest government loans
● Conditionally repayable government loans

Each type of government loan being provided may have its own benefits.

The guaranteed government loans help you by ensuring that you have a co-signer. The co-signer in this case is the Ontario government. So if things don’t go as planned, you’re not on the hook for the full borrowed amount. Instead the funding agency helps cover a percentage of the fund. This way both of you share the risk.

Low interest and no interest loans offered by the Ontario government are very helpful because they often have better terms than any traditional bank loan. Most of the terms through these government funding agencies are negotiable. Allowing you to walk away with better options than you would with a traditional bank loan.

The conditionally repayable loans are also an excellent source of funding for your small. The conditions may vary from business to business and are often negotiable in order to have the best chances of success for you as a business owner. Some may have conditions such as not having to make a payment until you hit success and profit, or not having to pay interest on any amount borrowed for 12 months; or making a
payment based on your profits each month rather than a interest rate based repayment.

The government loans that are provided to small business owners across Ontario are crucial in order
to help cover various costs. These costs can range from the initial start up costs, to the month to month operational cost and expenses.

To be eligible for a government loan, a business plan is one of the first steps that you should spend time on. Your business plan should be very clear and explain your business growth, provide a clear breakdown of your funding needs and how you plan on using the borrowed money, as well show potential in terms of your financials and show if all is to go as well as plan.

This business plan will be the document that you use to apply for government funding and loan programs.

Traditional small business bank loans

A bank loan is simply a bank loan.

Often people think that a bank loan is the safest option because it’s option because it’s being provided to you through the bank that you regularly visit and do it your personal banking with.

It’s easy.

Visit your bank, ask to apply for a loan, fill out a form, sit back and wait for approval.

While it seems easy, it’s often a pitfall, or a mistake that many small business owners make by choosing to go with the bank loan before considering other options.

Why is it a pitfall you ask?

Bank loans often have high interest rates. The terms are often set in stone and not very negotiable. Banks don’t really care much about your business, and only care about the profits they will make off of your borrowing. If you are a startup business, borrowing money from the bank to start up is extremely difficult.

If you don’t have business credit, and you don’t have past history due to simply being a startup, the conditions placed on your account and you’re borrowing me borrowing maybe even worse.

While you may apply for a bank loan on the personal level, your personal credit may be impacted and you may be on the hook for the 100% of the borrowed money. This may also impact your personal credit if things are to go bad with the business.

While you may be able to use personal assets such as the value of your vehicle, or your home as collateral towards the loan, it is not always recommended.

Generally speaking, government loans offer better terms, better conditions and are optimized more for helping a small business owner start up or expand their business than a traditional small business bank loan.

Keep in mind that a traditional bank loan has a purpose. This purpose is to give you the money so you can pay it back with interest. While the same may be true for a government funding program, more resources are put to wards a small business owner to succeed as the government has a lot more to gain than just the interest on your payments.

If you succeed as a small business owner you are paying taxes, this creates a life long cycle of returns for the government.

No matter the type of government loan or business loan you opt for, always do the necessary research and determining what it is that your business can actually afford to pay each month if necessary to cover the cost of these loans.

Government Loans in Ontario

Government Loans in Ontario

If you are deciding to start a small business in Ontario you may be considering certain government loans.

In most cases, capital will be required to start your business successfully. As a small business, you have dozens of startup expenses as well as operational expenses to keep your business running smoothly.

To cover these,  some sort of funding is required unless you have your own funds to start with.

Why do government loans exist

The Ontario government along with the federal government of Canada provides government loan programs to small business owners in order to boost the economy and give back. Ultimately the government benefits from providing you a loan, for a number of reasons.

  1.  The government gets their money paid back through interest.
  2.  The government gets paid back through taxes
  3.  By boosting the economy, you are creating jobs, and in other words your creating jobs for people who pay taxes.

No matter the type of funding that the government provides, they will not be losing money in most cases.

These government loans are provided to small business owners across Ontario and Canada and are there the help you succeed.

The funds can be used for a number of purposes including paying marketing costs, covering your initial startup expenses, the needed tools and equipment, hiring staff, and more.

Are you eligible for a government loan and Ontario

To determine whether you are qualified for a government loan in Ontario you have to consider a number of factors.

These factors vary from program to program as they do from business to business.

Your location, the industry that you are in, as well as the various funding needs that you have, are all factors in helping the government determine whether you are eligible for a government loan or not.

To see which government loan programs you might be eligible for your small business, use the funding database provided by Ontario Startups, and see all options available.

Before you consider applying to any government loan program you should have a business plan ready to go.

Your business plan should have an explanation of your business model, your marketing and growth strategy, your projected financials as well as a detailed breakdown of your funding requirements.

If you need assistance creating your business plan consider using the business plan builder tool provided by Ontario Startups.  It is a very easy tool to use plus you get expert assistance each step of the way

Different types of government loans in Ontario

While government loans are pretty much the same as a traditional bank loan they often come with better terms and have an extra layer of protection for you personally.

Government loans are some of the easier programs to get into, in comparison to government grants.

The different government loan types that are the most common include

  • No interest or low interest government loans
  • Conditionally repayable government loans
  • Government guaranteed loans

Each of these common government loan types has its pros and cons.

Depending on your small business and the very specific funding needs you have each of these government loan programs may be perfect for you.

No interest or low interest government loans

The government loans that have interest attached to them are much like bank loans. You borrow the needed money, a set term is in place, you pay back that money with interest.

These government loans are far better than any traditional bank loans simply due to the fact that they may have lower interest rates or better terms. This is all crucial information especially when you are starting a small business and every penny counts.

The no-interest loans provided by the Ontario or federal government of Canada are the exact same art same as the interest loans except they carry no interest. You borrow the money, use the money as needed, pay back.

Conditionally repayable government loans

These are some of the preferred government loans to apply for. Being conditionally repairable means that there is a condition placed on the loan.

These conditions can vary from program to program and business to business. Most, conditions are negotiable but can include conditions such as:

  • No repayment for a period of 5 years on the loan
  • No interest for the 1st 12 months
  • Only repay once you start profiting

These are a few of the terms that may be possible. Additional terms and conditions may be set and negotiated.

A conditional loan is favorable as it helps you keep more money in your pocket when you needed them most, especially during the initial startup phase.

Guaranteed government loans

No, it does not mean that the government guarantees you money. And no, not everybody can get a guaranteed government loan.

Guaranteed government loans simply mean that the government will be the co-signer on your loan.

Why does that matter?

If things don’t go as planned for you, with a traditional loan you are on the hook for 100% of the funds borrowed. This means any money that you borrowed no matter if your business is successful or not, you have to pay back.

With the government-guaranteed loan,  any money that is borrowed, the government is the cosigner. This means they are on the hook for part of the money.

You, you’re a small business and the government program agency, share the risk.

In some cases, the government can be on the hook for as much as 85% of the government loan.

This keeps some of the risks for you down.

These are the top government loans to consider when borrowing from the Ontario government or the federal government of Canada.

If your small business needs the initial capital to get started, a government loan may be your best option.

To see all government loans, and other types of government funding, try using the funding database and see all available options. The Ontario Startup experts are there to help support you, and guide you through the funding search step-by-step.

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