All across Canada, small business owners without access to a reliable and convenient source of business financing face an uphill battle.
All too often, small businesses limit their potential business growth by relying on costly and problematic forms of financing, such as business credit cards and lines of credit. These financing resources have a role to play in many small businesses, but they don’t provide the freedom and flexibility offered by other small business loan terms.
If you are a small business owner and you want to leverage your business assets to secure a new source of financing, the following guide will help you evaluate your small business loan options and maximize your loan amount.
Qualifying for a Small Business Loan
Lenders weigh a number of factors when deciding to approve or deny a loan application. Ultimately, small business owners need to demonstrate their creditworthiness. In other words, they must show that they will be able to repay the loan amount within the loan term.
Lenders will evaluate the following factors to see if you qualify for small business loans:
Credit Rating
Your personal credit score is the most important indicator of overall creditworthiness and credit history, so this figure plays a prominent role in loan applications. In general, higher credit scores increase the likelihood of approval and translate to more favourable loan terms and interest rates, but the minimum score required for a small business loan is 610.
If you aren’t sure of your current credit score, you can get your credit report for free from the major credit bureaus, Equifax, Experian and TransUnion. And you can also check your personal credit score through most major financial institutions.
Time in Operation
The longer your business has been in operation, the better it is for your business loan application. New businesses, such as start ups, have more difficulty qualifying for small business loans because they can be a risky investment for lenders.
Requirements vary from lender to lender, but your business will need to be in operation for at least six months in order to qualify.
Business Income
Lenders have minimum annual revenue requirements to make sure that your business has enough net income to be able to repay your business loan without compromising the financial health of your business. The amount of business income required varies according to several factors, but you are likely to qualify if you can provide bank statements that show at least $100,000 in annual revenue.
Collateral
Many lenders have collateral requirements in order to help mitigate their losses in the event of a default. Collateral is not an absolute requirement for all small business loans, but if you are willing and able to provide collateral, it will demonstrate your commitment to repaying your obligation to the lender.
Business Fundamentals
If you can show a potential lender that you are paying close attention to the various financial aspects of your business, you are much more likely to have your loan application approved.
A thoughtful and detailed business plan, cash flow statements, a sales & marketing strategy, and an action plan for how to use business financing will go a long way to show lenders that they are making a good investment by offering you a long or short-term loan.
Industry
Certain industries are deemed more risky than others. For example, qualifying for restaurant loans is often challenging for small business owners because the industry is highly competitive and has significant seasonal variation. Construction business loans, on the other hand, are often easier to approve because the applicants have an easier time demonstrating future profitability.
For specific considerations for your industry, speak to your lender before applying.
Who Offers Small Business Loans in Canada?
In the past, small business owners could only turn to a big bank or credit union when they needed financing, but there are now more companies and organizations offering small business loans than ever before.
In many communities across Canada, community loan funds and microlending operations have appeared, offered by non-profit and local government organizations. These offer great options for small businesses that don’t qualify for bank loans, but they only offer small amounts of financing and usually have some strings attached on how the funds can be used.
Online lenders are the leading alternative to the big banks because they have embraced the advantages of technology to make every part of the loan process faster and more convenient.
For example, with Lendified’s online small business loan applications, applicants can receive their funding to address urgent business needs in as little as 48 hours without ever having to leave their office.
How Much Can You Get a Small Business Loan for?
At Lendified, we believe that small businesses should be treated better. We offer a quick and easy online application process that delivers free, personalized quotes instantly. We keep the cost of borrowing to a minimum thanks to competitive interest rates, and we are transparent about all fees and charges.
Through Lendified, qualified applicants can receive short to small business loans ranging from $5,000 to $150,000 with terms of up to 24 months.
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