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The non-bank lending market has quietly become the default source of short-term business credit across North America. Approvals arrive in a day or two, paperwork is thin, and a business that a chartered bank would decline on tenure alone can be funded before the end of the week.
What has not kept pace is the ability of most borrowers to compare what they are being offered. The pricing conventions in this market differ enough from traditional lending that two quotes displaying the same headline number can carry a materially different cost.
The vocabulary problem sits at the centre of it
Bank credit is quoted as an annual percentage rate on a declining balance. You borrow, you repay over time, and interest is charged on what remains outstanding.
A large share of short-term business financing is not structured that way. It is priced as a factor rate or a fixed fee on the original amount, and repayment is collected daily or weekly rather than monthly. Interest does not decline as the balance does, because there is no interest in the conventional sense. There is a fixed cost of capital, agreed at the outset, collected in equal instalments.
The consequence is arithmetic rather than ethical. A $100,000 advance repaid over ten months at a 1.25 factor costs $25,000. Expressed as an annual rate on the average outstanding balance, that is roughly double what the factor implies, because you never have the full $100,000 for the full ten months. Neither figure is dishonest. They measure different things.
Three variables that move the true cost
Repayment frequency. Daily collection shortens the average life of the money you hold. Two offers with identical totals will not cost the same if one debits every business day and the other every Friday. The daily structure also interacts with your own receipts: a business that invoices monthly and repays daily is financing the gap twice.
Term against use. Short-term facilities in this market commonly run nine to twelve months. That is well matched to inventory, a seasonal payroll bulge, or a supplier prepayment that converts to cash inside the same period. It is poorly matched to an asset you will use for six years. Financing a long-lived purchase with short-term money is the single most common structural error, and it shows up as a cash squeeze in month four rather than as a bad rate.
Security. Secured facilities price lower and lend higher, at the cost of a lien and a slower file. Unsecured facilities close faster and price for that speed. Neither is the correct answer in the abstract.
The same monthly cost, a very different week
Two facilities can carry an identical cost per month and still sit very differently on a business. The advance described above, $100,000 over ten months, costs $25,000 and repays $125,000 in total. Set beside it a second quote: the same amount at a 1.15 factor over six months, costing $15,000 for a total of $115,000.
Ten thousand dollars separates them, in favour of the shorter one, and divided by term both work out to $2,500 a month. What differs is the weekly draw. Across roughly forty three weeks, the first collects about $2,880. Over twenty six, the shorter facility takes about $4,420, more than half again as much, every week, out of the same receipts.
Which is correct depends on what the money is doing. Where an invoice settles in five months, the shorter term costs less and the schedule is affordable. Where a seasonal build does not convert until month eight, that same schedule produces a shortfall long before the receivable arrives.
What the range actually looks like
Published pricing on Canadian short-term business facilities generally spans something like 12 to 45 percent, with amounts from roughly $5,000 to $500,000 and terms clustered around nine to twelve months. The spread is wide because the underwriting is genuinely risk-based: time in business, consistency of monthly deposits, and the pattern visible in three to six months of bank statements do most of the work.
That last point is worth dwelling on. Underwriting in this segment leans on deposit behaviour rather than on credit score alone, which is precisely why applicants with damaged personal credit are sometimes approved and applicants with clean credit and erratic revenue are sometimes declined.
The comparison that is worth doing
Before signing anything, convert every offer to the same unit: total dollars repaid, and total dollars repaid per week.
The first number tells you what the capital costs. The second tells you whether your operation can carry it. A facility that is cheap in total and brutal weekly will damage a business faster than an expensive one sized to its receipts.
Two figures also need to be read against each other rather than separately: the sum the pricing is applied to, and the sum that reaches the account. Origination and administration fees are commonly deducted at disbursement, so a facility quoted on $100,000 may fund somewhat less while the repayment schedule is built on the full figure. Any holdback retained as security works the same way. Neither practice is concealed, but neither appears in the headline number, and both raise what the usable capital actually costs.
Then ask three questions that materially change the answer and are rarely volunteered. Is there a discount for early repayment, or is the fixed fee owed regardless? What happens to the schedule in a slow month, and is there a documented mechanism or only goodwill? Is the facility renewable, and on what basis, since many businesses in this market are effectively rolling a line rather than taking a one-off advance?
Where a broker changes the outcome
The practical difficulty is that no borrower sees the whole market. Direct funders present their own product, and the applicant compares two or three offers that happened to reach them.
This is the gap independent brokers occupy. Firms such as Fincap Financial Group work across a panel of more than thirty Canadian funders, submitting one file and reading back the structures that come in, which is a different exercise from rate shopping. Their overview of how Canadian working capital lenders underwrite these facilities sets out the ranges, the eligibility thresholds and the security trade-offs in plain terms.
None of this makes short-term credit the wrong instrument. Used against a receivable, a season, or a purchase order that converts inside the term, it is often the correct one, and the speed has genuine commercial value. The error is not the price. The error is matching a twelve-month liability to a six-year asset, and discovering the mismatch only once the debits have started.
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