How to Get a Business Loan in Canada

For small businesses, finding a loan can be quite challenging. Canadian banks are generally known to be conservative, which is why starting a business from the ground up can be risky, says former Dragon's Den host, Dianne Buckner.

But whether it is difficult or not, many small business owners will require some capital to grow their business. However, the problem is that applying for a loan is extremely difficult, but also long and, at times, discouraging. It's disappointing to know that banks and other conventional lending institutions don't always lend money to start-ups or independent businesses. That's why small business owners need to be prepared to face the music once they finally meet up with a lender.

Because of such harsh realities, we took it upon ourselves to give small and independent business owners a better chance of acquiring the loan they're looking for.

Here are some of the most reliable strategies on how to get a business loan in Canada:

Ways to Get a Business Loan in Canada

1. Prepare a Business Plan

Whether you're looking to acquire funding from a credit union or a bank or even a financing program, you need to have a plausible business plan.

This first step on how to get a business loan aims to ensure lenders can loan money to a business that they know can succeed. Without a proper strategy, there is less chance for your growing business to avoid potential financial success in the future. In other words, before you seek out small business loans, you need to have a strong vision and mission that defines your business.

The business plan must have clear and detailed data on how you'll get essential teams for your mission, including HR and marketing, ready to take your business on the road. The data must include a risk management plan, measures to retain employees, and a business strategy, among other aspects.

2. Canada Small Business Financing Program

The Canada Small Business Financing Program (CSBFP) aids start-ups or small businesses with a maximum gross revenue of $10 million. Such companies can apply for this program at any credit union, bank, or Caisse Populaire in Canada. The ones that aren't eligible for this program include nonprofit organizations, farming businesses, religious or charitable organizations. It’s also one of the best ways on how to get a small business loan in Canada.

3. Collateral

Many conventional lending institutions greatly value collateral. Secured loans will give you the capital that you need. It's a bit easier to get a loan backed up by some kind of collateral. Since small or startup businesses don't exactly have expensive assets, they may want to use personal collaterals such as their vehicle or house to secure their loan.

4. Online Small Business Lender

A new line of online lenders is now offering small business loans. Online loans are very similar to traditional ones in numerous ways. The difference is how they utilize technology, the process behind qualifying for a small business loan, and the sort of paradigm they use to evaluate the worth of a potential borrower.

With conventional lenders turning away from small business owners, online lenders have stepped into the picture to offer them not only capital but also including a financing option that was never there before.

Just ask how Airbnb, Uber, and Amazon have transformed the world's shops, online lenders use technology to align loan purposes with the appropriate loan product so that small companies can grow their business and fulfill other capital requirements. If you're looking for a reputable online lender that can do all that, we suggest you check out Loans Geeks. They partner with some of the best lenders out there.

5. Installment Loan

Also known as a term loan, an installment loan is a type of loan that is repaid in a bunch of installments over a fixed timeline. You may know about long-term loans like the ones that Banks usually offered; only this time, lenders have introduced shorter-term alternatives that can be used as a working capital loan.

Installment loans range between $5,000 to somewhere in the millions, depending on what you're going to use and how much you are qualified for. The terms for this loan vary according to your needs and the lender. Banks generally offer installment loans that range from 2 to 7 years for working capital and 25 years for real estate. On the other hand, alternate lenders provide business loans of shorter terms for the sake of working capital and range between three months up to two years.

6. Working Capital Loans

These types of loans are ideal for financing a business's daily operations and supplying short-term operational requirements like rent and payroll. Working capital loans are taken out by companies that experience periods of cyclical sales and high seasonality. These loans close the gaps from these periods of lower sales and are fully paid when the busy season comes around.

7. BDC Expansion Loan

If you can get your business to qualify, you can secure long-term financing of up to $100,000. This way, you'll be able to develop e-commerce, partake in trade shows, obtain certifications, have a marketing plan implemented, and much more. What's even better is that the BDC re-advances any of the loan's repaid portion beginning as low as $10,000.

8. Credit History

Your small business needs to have its credit history and score to offer potential lenders every crucial information they want and show them how you handle the finances of your company. If your company hasn't had time to grow its own credit history, then potential lenders may want to look at your personal credit score in history.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes