Many Canadian business owners and entrepreneurs encounter challenges securing financing from traditional banks. This can result from bank policy or underwriting restrictions and guidelines that limit the bank’s ability or willingness to lend.
When this occurs, private lenders and alternative loan providers may offer viable capital options.
This blog outlines common reasons applications are declined, the types of second-tier lending available, and how Union Lending Corporation can help.
Why a Business Loan May Be Declined by a Bank
Banks apply standardized lending criteria that are driven by policy and regulatory requirements. Common reasons for declined applications include:
- Insufficient or non-conventional collateral
Limited credit history or credit events - Sector-specific concentration risk
- Volatile or seasonal cash flow patterns
- Documentation that does not conform to underwriting standards
These factors, which may not reflect the strength of the borrower, may prevent them from failing within institutional lending policy.
What Are Non-Bank Business Loans
When traditional banks are unwilling to provide a loan, financing may be extended by non-bank lenders who operate under different structuring and underwriting guidelines. They may suit businesses with:
- Good collateral
- Reasonable business fundamentals
- Well-prepared financial records
- Clear use of proceeds
Types of Second-Tier Lending in Canada
Private Lending Solutions
- Offered by private lenders operating with their own risk-return parameters
- Designed for businesses requiring:
- Collateral structures not suited to conventional banks (e.g., land assembly, higher LTV, limited covenant support)
- Timely execution
- Creative loan structures
There are many specialty finance providers that offer cash-flow based lending including:
- Invoice factoring using collectible invoices as loan collateral
- Short-term business working capital loans
- Equipment financing tied to specific assets
Considerations Before Accessing Non-Bank Lending
Borrowers considering second-tier lending should:
- Prepare current operating financial statements and asset security descriptions
- Understand loan pricing including rates, fees, and prepayment terms
- Review the underwriting process and security requirements
- Seek alignment with long-term business strategy
Frequently Asked Questions
How does a private lender evaluate loan applications?
Private lenders assess commercial fundamentals and collateral value using internal underwriting frameworks. Important information include the amount of loan being requested, use of funds, available collateral, ability to make loan payouts, and repayment plan.
What amounts are available through private lending?
Union Lending Corporation typically underwrites loan requests between $400,000 and $15 million.
How long does it take to access funds?
Typical private lending timelines range from several business days to a few weeks, depending on how quickly the borrower provides the requested underwriting documents and underwriting complexity.
If your business loan application has been declined by a bank, contact Union Lending Corporation. We may be able to help you.