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    How to apply for a small business loan in Canada

    If you own a small business, you know that it can be challenging to get everything you’ll need to start, or continue, through an unsteady economy. For that reason, learning the ins and outs of small business loans is essential for every business owner.

    From what it takes to qualify for a small business loan in Canada to the how-to of applying, let’s break down everything you need to know to create a successful business.


    What is a small business loan?

    A small business loan is similar to most other loans in that you will receive a lump sum of money from a lender to repay over a period of time, at an agreed upon interest rate and on specific terms. 

    A common small business loan would be a term loan to purchase new equipment. 

    Example: Your business buys a $50,000 bobcat. The bank contributes $35,000, and your business pays the other $15,000. You agree to pay down the $35,000 balance over the five-year term at an interest rate of prime plus 1%. At the end of the five years, you’d be expected to have repaid the $35,000 plus the interest payments.  

    Small business loans are great for purchasing new equipment or software, applying for a trademark or patenting a product, or to cover other business expenses. For example, if you run a catering company, you may need to purchase large kitchen appliances for your business.


    How do you know if you are eligible for a small business loan?

    To secure a loan, it’s imperative to provide lenders with all of the appropriate information. Knowing what to prepare before applying or meeting with lenders will ensure a smooth approval process.

    Typically, lenders require the following documentation from small business owners:

    #1. Credit history 

    Lenders will typically look at the borrower’s personal credit score and history to prove that you are a responsible borrower and always pay your bills on time. The lowest credit score that most lenders will accept is 680, but 700 and above is ideal.

    Hot take: If you’re trying to boost your score, it’s important to note that credit bureaus actually care how much debt you hold on your credit cards or carry on loans. Credit utilization is worth 30% of your total credit score. For that reason, it’s important to keep your balance at less than 30% of what your maximum spending allowance is. Learn more about building good business credit

    #2. Collateral

    Most lenders will also require some collateral to secure your small business loan. Most times, lenders use collateral to protect themselves from borrower default or an inability to repay their loan. Typical assets that you can use as collateral are real estate or equipment with high value.

    Hot take: If it turns out that you don’t have collateral to offer to lenders, focus on hitting all of the other requirements with an A+ grade. You may still be able to secure the loan by signing a personal guarantee. 

    #3. Age of business

    Lenders will want to know whether your business has been in operation for a reasonable amount of time. At a minimum, banks will typically look for two or three years of financial statements. (And they want those years to be profitable.)

    Hot take: If you’re worried that your business is too green to get approval, show how serious you are. If you have invested your own money into the company, the lender will see that you are risking your money alongside their loan, making it obvious that you mean business.

    #4. Cash flow

    Perhaps one of the most critical factors of loan eligibility is knowing how much money comes in and goes out of your business. Using your business plan, lenders can forecast your cash flow. Lenders will need to know what type of financing you need and how you intend to use the funds. It’s important to demonstrate your ability to grow as a business, find a way to show proof of profitability, and know how long you need to repay your loan. 

    Hot take: Sometimes the cash might not be flowing as quickly as you’d hoped, which can make it difficult to secure a loan. You may need to wait until you have more of a financial backing to prove your worth to lenders. Start by ensuring you have a thoughtful and intentional approach to your businesses’ financial well-being – including setting goals and priorities. Check out our “8 steps to financial planning for small business owners” to set you on the right path to building a strong financial foundation.

    #5. Annual revenue

    Although difficult to estimate unless you have been in operation for longer than a year, lenders will usually require a base annual revenue. Generally, the benchmark is $80,000 to $100,000 per year. 

    Each type of small business loan will have different requirements and eligibility terms, but the typical base-level eligibility to consider is: 

    • You are a Canadian-run business
    • You have been generating income for at least two years, and
    • You have a solid credit history.

    What types of small business loans are available, and from whom?

    Most lenders will provide loans to businesses, but some lenders specifically offer loans to small businesses. To find out what loans are available and what you may be eligible for, check out the Government of Alberta small business resource page or their funding a small business information page. 

    You can get small business loans from many different types of lenders, including:

    • Banks
    • Credit unions
    • Online lenders
    • Community funds
    • Friends and family

    The most common types of small business loans include:

    • Term loans or instalments loans
    • Operating line of credit 
    • A business credit card
    • Personal lines of credit or credit cards
    • Merchant cash advance 
    • Equipment lease
    • Commercial mortgages

    Wherever you choose to apply for a small business loan, be sure to do the appropriate research to protect yourself financially and set yourself and your business up for success. 


    Is a small business loan right for you?

    A small business loan has many benefits, including supporting a fast-growing business, keeping control of your company rather than relying on investors, and receiving tax breaks. 

    Not only that, small business loans can also help you build credit for your business and can be reasonably easy to obtain if you have all of your information available and are in good financial standing. 

    If you’re not sure whether a small business loan is right for you, connect with our team for guidance to ensure you’re making a sound financial decision. 


    If you’re starting your own business, we have lots of useful resources to help you get your venture off the ground and set yourself up for small business success. Check out our small business toolkit and our free small business ebooks. You can also sign up for our monthly newsletter full of small business advice and tips! 

    Read more of our Starting a Business articles that may be helpful to you as you grow your small business.

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