Tips for Getting a Small Business Loan

Small businesses constitute 98% of all enterprises in Canada, yet only about half of them survive beyond five years. Starting your own business involves many steps, and applying for a loan is a critical one. The additional funds can offer the boost your business needs to thrive well beyond the initial years.

If you're an entrepreneur seeking a loan to launch or grow your business, here are some essential steps for securing a small business loan in Canada:

Find a lender that gets your business

Securing approval for a business loan is an exciting milestone, but finding a loan that aligns with your business needs is crucial. It's like shopping for any large purchse—you need to do your homework. Look for loans and financial institutions that meet your criteria, considering factors like interest rates, industry expertise, and personalized service. Compare various loan options to find one that best suits your requirements.

If you're reviewing the terms of a potential business loan and feel uncertain about meeting the payment schedule, don't hesitate to speak up. Ask if a grace period, reduced monthly payments, or additional payments can be arranged to make you more comfortable with the agreement.

When evaluating different lenders, consider that credit unions are among the largest lenders to small and medium-sized businesses in Canada and are known for high customer satisfaction. A study by the Canadian Federation of Independent Business (CFIB) surveyed over 11,000 small businesses about their satisfaction with their financial institutions in areas such as financing, fees, account management, and service. Credit unions achieved the highest overall score and excelled in each evaluated area.

By thoroughly researching upfront, you can confidently choose the right lender, benefiting your business in the long run.


Your credit score and history are important

Do you know your credit score? When applying for any loan, your credit score and history are scrutinized and can significantly influence your approval chances. Your credit score provides a financial snapshot of how well you manage your money, helping lenders assess your creditworthiness and ability to repay debts on time.

This score reflects your financial history and responsibility. Lenders use it to gauge your credit risk, determining how much money to lend and the interest rate to charge. Essentially, a higher score means more trust from lenders in your repayment ability. In Canada, credit scores range from 300 to 900. Your score can impact the types of loans you're eligible for and even the properties you can rent. These three numbers carry significant weight and can make the difference in securing that business loan. Learn more about your credit history and its importance here.


Develop a comprehensive business plan

As a business owner, you believe in your product or service, but when applying for a loan, you need to demonstrate your business’s value and credibility to the lender. This is where a solid business plan is essential.  It's crucial for securing a business loan and should include an overview of your business’s history, structure, company size, marketing strategy, and a detailed description of your products or services.

A credible business plan should also outline your short- and long-term goals, business forecasts, and financials. It’s an essential part of starting and growing your business and a must when seeking external funding. 


Compile additional financial documents

In addition to a solid business plan, have your supplementary financial documents ready when presenting your small business to potential lenders. These documents, known as year-end financial statements, include your Balance Sheet, Income Statement, Expense Report, and a Year-to-Date Statement for existing businesses. They demonstrate that you have a clear record of your business’s financial health, including profits, assets, losses, and expenses.

Additionally, provide a Personal Net Worth Statement, indicating your personal assets, your most recent tax return, recent bank statements, and proof of business registration. When applying for a small business loan, more information is better. Providing comprehensive details about you and your business brings you closer to securing the necessary funding to launch or expand your business.


Grow your business with a credit union

Are you ready to take the next step in growing your small business? Consider ABCU for your financial needs. Our team of trusted experts is ready to start the conversation and build the business of your dreams. 1-888-929-7511