How to secure a business loan

Lessons in lending

Regardless of what industry you’re a part of or how many clients or customers you have, there is one thing that all business owners need: capital to keep things running. A business loan is one of the most common forms of funding for small business owners in Canada.

But how exactly should you go about getting the funding you need?

Preparation is key when applying for a business loan

Before you head to your local bank or credit union or hop online to find an alternative option, the most important thing you can do is to get prepared.

Business loans require more paperwork and effort than personal loan applications.

There are five essential steps to take before you apply for a business loan:

  1. Create a business plan.
  2. Have a clear idea of how you’ll use the money.
  3. Research your options.
  4. Find the right lender.
  5. Make sure you have what it takes to qualify.

It’s up to you represent your business and your ideas in the best way possible. The more prepared you are the more confident you’ll be, thus increasing your chances of success. Let’s get started!

1. Create a business plan

As a small business owner, you need to have a business plan that includes all your goals for your company and how you plan to achieve them. What are your one-year, five-year and even 10-year goals? If you’re meeting with a specific lender that you’re very interested in working with, make sure you tailor your plan to that lender.

2. Have a clear idea of how you’ll use the money

Business Loan Woman Holding Up a SketchFor most business owners, this intention will be conveyed within your business plan. But just in case, it’s always in your best interest to be prepared to explain exactly how you’re going to use your loan to grow and improve your business, separate from your business plan.

3. Research your options

Most small business loan lenders have at least two if not multiple options for business funding.

You should know what your funding options are and even have an opinion on which one would best suit your needs.

 

Lenders will likely have their own suggestions, but be prepared so you can have a productive conversation.

4. Find the right lender

Whether you’re looking for a working capital loan or a startup business loan, choosing the right lender is important. Working with a lender who has experience in your industry or with similar businesses will help make the application process smooth. They also will be able to provide guidance and advice if you need it.

5. Make sure you have what it takes to qualify

While many small businesses need funding, unfortunately, not all are able to qualify with all lenders. This is why it’s so important for you to make sure you have at least a pretty good chance of qualifying before you speak with a lender. This way you won’t be wasting anyone’s time.

Small business loans available in CanadaBusiness Loan Interior of Coffee Shop

A great benefit to operating a small business in Canada is that there is an almost endless number of business loan options available to you. These include debt financing, equity financing and government financing.

Debt financing

Most small business owners are looking for debt financing to help fund their enterprise. Debt financing is when you borrow money, to expand or deal with daily operational costs, that you will need to pay back.

Canadian chartered banks

For commercial loans and other traditional forms of business funding, you can choose to apply at a Canadian chartered bank. This includes The Big Five (RBC, TD, Scotiabank, BMO and CIBC) and also other slightly smaller banks, for example, Equitable Bank and VersaBank.

Credit unions

You also may want to look into working with a credit union in your area. Credit unions typically offer commercial business loans as well as credit and banking solutions for Canadian small business owners.

Cooperatives

If you are a small business owner in Quebec or Ontario, you have the option of working with the financial cooperative, Desjardins Group. They can give you access to startup business loans and other financial solutions.

Finance and leasing companies

If your business requires any type of small or large equipment, working with a financing and leasing company is a great way to get the equipment you need. You’ll also benefit from their expertise in working specifically with equipment and asset-based financing.

Equity financing

Another form of business funding available to Canadian small business owners is equity financing. With this method, you’ll raise the capital your business needs by selling stocks of your company to investors, these investors will become shareholders and have an ownership interest in your company.

For this type of financing, reaching out to an equity financing association in your province is a great first step. There are several of these association serving business owners both on the federal and on the provincial level. The Government of Canada’s website has some great resources for business owners looking into equity financing.

Government financing

A third financing option available to you as an entrepreneur is government financing. Both federal and provincial governments offer a wide variety of financing resources to help Canadians start small businesses.

From financing available to specific industries and demographics to more general options, there is something for everyone.

Business Loan Man Upholstering a Chair
If you choose to seek financial help from the government, you may be able to gain access to startup business loans, loan guarantees and even grants and contributions.

Getting the financing you need

Finding the right business loan can help you expand your business and ultimately achieve your goals. The great news is, you have a wide variety of options to choose from. From private sector loans to government grants for startups, you should have no problem finding the right fit for your business.