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How to get a business loan in Canada

Need funds for your business ASAP? If you're a small business owner, find out what types of financing are available and how to get a business loan.

7 min. read

Whether you want to launch a new enterprise or build your existing business, you might realize you can only go so far with the capital you have. One solution? Getting a business loan. The problem is that the business loan process can be complicated and there are various types of business loans to consider. Let’s break down how to get a business loan in Canada and what to consider when applying for business financing.

What is a business loan?

Business loans are a type of loan offered to businesses by financial institutions or online lenders. The lender provides upfront capital to the business specifically for business expenses or other eligible purchases. In turn, the borrower pays interest on the loan and repays the business loan during the repayment term.

There are different types of business loans to consider. However, each lender has its own eligibility requirements, repayment terms and rates.

What are the types of business loans?

If you need business financing to start a new endeavor or grow your current business, there are various lenders to consider. When getting a loan for a business, you want to find a lender that can work with you and help you get where you want to go. The two main types of business loans to consider include:

  1. Small business loans through the Canada Small Business Financing Program. Eighty-five per cent of this type loan are backed by the Government of Canada, making it less risky for lenders to offer.
  1. Traditional small business loans from a bank or online lender.

The Canada Small Business Financing Program partners with lenders such as BMO to offer bank loans for small businesses. This makes the business loan process more accessible and the risk is reduced for the lenders and expands options for business owners.

Though these types of business loans are guaranteed by and facilitated through the Government of Canada, the logistics, such as the application, funding and repayment are handled by the bank. BMO is one of the lending partners for this program.

Through this option, you may qualify for up to $500,000 to purchase vehicles and equipment, renovate a leased property, or finance working capital. Additionally, there are opportunities for business financing for up to one million dollars to purchase or make improvements to a commercial property. The ideal candidate for this bank loan is a startup or established company in Canada with revenue of $10 million or less.

The other funding option is to get a loan through banks, financial institutions, as well as online lenders. A bank loan in business can come from a place like BMO, which offers the following types of business loans:

  • Small business installment loan, which offers a no-fee application on financing up to $250,000
  • Installment Loan Plan (ILP), which offers up to $500,000, has fixed rates and monthly payments, and has various repayment terms
  • Fixed-Rate Term Loan, which is designed for people buying capital assets offering terms of 5 years
  • Variable-Rate Term Loan, which may help you save money when rates drop and offers flexible repayment options
  • U.S. Loans from BMO Bank, which allows borrowers to take out funds in USD and is catered toward applicants who need $100,000 or less

On top of these bank loans from small businesses, BMO also offers a credit line for business that offers borrowers up to $120,000. Additionally, there are other lines of credit available based on using your home as collateral.

BMO also offers specialized business funding for:

Whether you’re a new entrepreneur or have many years of experience under your belt, getting a loan for a business is possible and there are options out there to support you. To get started with the business loan process, here are the steps on how to get a business loan in Canada.

“Getting a loan for a business can be a smart move and help you expedite the growth process. ”

Step 1: Identify your funding needs

Getting a loan for a business can be a smart move and help you expedite the growth process. But you still want to be responsible and only borrow what you need and you can afford to repay. Before applying for a bank loan for small business, identify how much funding you need and what it’ll be used for.

Once you have an idea of how much you’d like to borrow for your business, you can use this Business Loan Calculator to get an idea of what your monthly payments might look like.

Step 2: Review the different types of business loans

After identifying your business financing needs, review the various types of business loans that fit your needs.

If you need startup capital or a small amount to bridge any gaps in cashflow, a business line of credit may be the best option. For larger amounts to purchase property or launch a big initiative, a bank loan for small business from a reputable lender is likely a better fit.

If you’re a new entrepreneur, it may be more challenging to get approved for financing without an established history or collateral. In that case, you can consider finding sources of capital from friends, family, investors, customers and more.

Step 3: See if you qualify

The good news is there are many types of business loans to choose from. On the other hand, you want to make sure you qualify before applying. Every lender has its own eligibility criteria to consider. In general, you’ll need a strong credit score to show that you’re a creditworthy applicant.

For example, the credit bureau Equifax considers a “good” credit score in Canada to be in the range of 660-724. Anything above that is even better. If your credit score is below that range, you may want to take time to rebuild your credit score by making on-time payments and paying down existing debt.

Your credit score isn’t the only thing prospective lenders will look at. Additional factors may include:

Business history. When applying for a business loan, the lender wants to assess your business history or how long you’ve been running the business. Typically, you need two years of business history to qualify for a traditional business loan. Some lenders may work with you during your start-up phase, which is generally defined as your first two years in business. Newer businesses may have a harder time getting approved for a business loan.

Business finances. Taking out a bank loan means borrowing someone else’s money. The lender wants to ensure you can repay the loan, so they’ll review your business finances as well. Generally, this can include your business revenue, debt-to-income ratio, profit and loss statements, tax returns, as well as cash flow projections for the future.

Location and size of the company. To get approved for a Canadian small business loan, your business must be located in Canada. Depending on the lender, there may be more specific geographic requirements. Aside from location, the size of your company may be considered as part of the business loan process.

Business type and revenue streams. Every business is unique and a lender will assess what type of legal business structure you have and the revenue streams your business has to earn income.

Any potential collateral. Some business loan options may require collateral to back the loan or line of credit. Collateral may include business equipment, a vehicle, or your home. 

Step 4: Gather documentation

After evaluating your eligibility and choosing a lender, gather documentation relevant to your business to get started. To apply for a BMO small business loan, you’ll need to provide different documentation based on the type of business you have. These items can include:

  • Canadian government issued-ID
  • Business license
  • Trade name registration
  • Article of incorporation, if applicable
  • Financial statements
  • Business plan
  • Personal and/or business tax returns
  • Additional documents, as needed

You can find out what to bring to a small business appointment, so you’re prepared ahead of time.

Step 5: Submit an application for a business loan

The final step is to apply for a business loan. Make sure you have everything you need to expedite the process and get the financing you need ASAP. If you want to figure out how to get a business loan in Canada, you can talk to the experts at BMO and find a business banking professional near you.

Need financing soon? Check out BMO’s Credit Line for Business.

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