If you’re a small business owner, you already know how tough it can be to navigate startup costs, seasonal cash flow dips or opportunities for growth. That’s where small business loans come in.
Here’s what you need to know before applying for a loan — what lenders look for, how to improve your odds of approval and where to find the right type of financing.
What is a small business loan?
A small business loan is money you borrow from a lender to use for your business — and pay back, with interest, over time. Pretty straightforward.
Let’s say you need a $50,000 bobcat for your landscaping company. The bank might loan you $35,000 while you chip in $15,000. You’d pay off the loan over five years at a set interest rate (say, prime + 1%). By the end of that five-year term, you’ll have paid the $35,000 back — plus interest.
Loans like these help business owners purchase equipment, secure office space, upgrade technology, apply for patents or trademarks or cover large upfront costs, such as commercial kitchen appliances. The key is knowing how and when to use borrowed money wisely.
How to know if you’re eligible for a loan
Lenders want to know that you’re a safe bet — that you’ll pay them back on time, with interest. Here’s what they’ll ask for.
Credit history
They’ll check your personal credit score and history to see if you’re in the habit of paying your bills on time. A credit score of 680 is typically the minimum required to qualify, but a score of 700 or higher is generally considered safer.
Hot tip: Credit utilization makes up about 30% of your credit score. Try to keep your credit card balances below 30% of your limit. (If you’re looking to build business credit, we’ve got a guide for that too.)
Collateral
This is the asset you offer the lender as security. If you default on the loan, they can seize the collateral to recover their money. Real estate and valuable equipment are common examples.
No collateral? You might still qualify by signing a personal guarantee — which means you’ll be on the hook personally if your business can’t repay the loan.
Time in business
Most lenders want to see two or three years of financial statements — ideally showing that your business is profitable. That proves staying power.
If you’re newer than that, show how much you’ve personally invested in the business. When lenders see you’ve got skin in the game, they’re more likely to back you.
Cash flow
Lenders want to know how much money your business earns — and how much of that you keep. They’ll ask how you plan to use the loan and whether your current and projected cash flow can handle the repayments.
If cash is tight, you may need to wait and strengthen your financial position first. Setting up a proper budget and a financial plan can help. (Our guide to small business financial planning is a great place to start.)
Annual revenue
Most lenders require a minimum annual revenue, usually between $80,000 and $100,000. If you’re not quite there, look into microloans or small business grants instead — or consider other ways to build up your revenue before borrowing.
In general, you’ll need to check off these three boxes to qualify for most small business loans in Canada:
- You run a Canadian-based business
- You’ve been in business for at least two years
- You have a strong personal credit score
Types of small business loans (and where to get them)
There’s no one-size-fits-all loan. The right kind of financing depends on what you need the money for and how you plan to repay it. Here are a few options:
- Term loan: Lump sum of money paid back over a set term (like the bobcat example).
- Operating line of credit: Flexible cash you can draw from as needed — great for smoothing out seasonal income.
- Business credit card: Good for smaller day-to-day expenses and building business credit.
- Merchant cash advance: You borrow against future sales — often used in retail but comes with higher fees.
- Equipment lease: Instead of buying equipment outright, you pay a monthly lease — easier on cash flow but more expensive long-term.
- Commercial mortgage: To buy or renovate a commercial property.
You can apply for these through:
- Banks (like RBC, BMO, ATB)
- Credit unions
- Online lenders
- Community loan funds
- Friends or family (though we recommend setting clear terms)
For more help navigating what you might qualify for, check out the Government of Alberta’s small business resources.
Should you take out a loan?
Loans aren’t free money — they come with interest and risk. But they can also help you:
- Take on new business opportunities
- Keep full ownership instead of bringing in investors
- Build business credit
- Access tax-deductible interest payments
The key is having a plan. Know exactly how the money will be used, how it will help your business grow and how you’ll repay it — on time and in full.
Still unsure if a loan is right for you?
There’s a lot to weigh when taking on debt for your business. If you’re unsure whether you qualify or whether it's the right fit for your situation, we’re happy to talk it through.
Resources to help you get started
If you're building a business, we’ve got tools to help:
- Small business toolkit
- Free ebooks on starting and running a business
- A monthly newsletter full of straight-shooting tips for small business owners
Read more of our Starting a Business articles that may be helpful to you as you grow your small business.
