There are many business loan options available that business owners can choose between, and qualifying for a loan is a possibility for more people than ever before. When applying for a business loan, you need to be wise, evaluating your choices to make sure you end up with a load that benefits your business’ unique financial situation.
Your personal credit history and your business credit profile are evaluated by lenders to validate your eligibility. The following information will help you prepare, increasing your chances for getting a business loan.
When you are applying for a business loan, you’ll need to be ready to explain your plan. You should expect questions about why you need the funds and how you will make repayment. Whether you deal with online lenders or traditional banks, anyone credible will want to fully understand your credit history, the state of your business today and, your future business plans.
You can stay ahead of the game, and save money, by taking the time to prepare all necessary documents and relevant data. Each lender will have unique paperwork requirements for a business loan, Canada having both federal and provincial regulations.
The documentation is important to meet business loan requirements. Each lender will ask for what they feel is necessary to help you find success with funding. While you may only need some of the following when applying for a business loan, we recommend you look into the full list:
- A detailed business plan, complete with clear company objectives, a timeline demonstrating how your company will achieve sustainability. Include a report detailing how the borrowed funds will achieve growth. This plan is the resume for your business, you may be asked to provide a list of trade references to prove your creditworthiness.
- A lender will need capital business assets for collateral, a common small business loan requirement. There are specific ways that traditional lenders will collateralize a business loan, while the online lenders tend to prefer a general lien on your business over specified assets. Online lenders create more access for getting a business loan in Canada because they don’t have such a rigid collateral list. This means adequate capital doesn’t block gaining borrowed capital.
- Financial statements and cash flow projections will detail to lenders the current health of your businesses, or how likely you are to be able to make repayments. This will streamline their evaluation of whether you qualify as a good candidate for a small business load in Canada. Algorithms measure your cash expenditures against your income, confirming the amount of cashflow that you can access to service the debt. Cleanly prepared data lets lenders understand your businesses market potential, current performance in the marketplace and any form of outstanding debt. You should have both historic cash flow statements and any projections.
- Your creditworthiness will be evaluated by your personal credit score and business credit profile. Understanding your credit data is important, you can request a free copy of your credit score from the Canadian credit bureaus. Your credit score outlines a complete history of any lending and repayment and is a big part of how to get a small business loan. In Canada, a high personal credit score (above 700) is considered a minimum requirement when borrowing from a traditional bank.
- Your personal income paperwork, copies of your tax return documentation and any insurance policies are extra evidence your lender can you use to diagnose your financial health. The more you provide showing you can manage repayment, the simpler applying for a business loan becomes.
- Sometimes collateral needs evidence, for items like real estate, to help secure your small business loan. Especially if you apply at a bank. Most lenders will conduct a loan-to-value analysis for potential collateral. They determine if the value of your collateral is high enough to serve the role of securing your loan. The lender calculates the loan-to-value ratio, the amount of funds provided against the value of your collateral. The type of collateral, compared against this ratio will influence if you are approved or denied when applying for a business loan. You can use property, stocks, bonds, inventory, equipment and accounts receivable as different forms of collateral. Another way to curry the favour of a lender is to prove you have made a significant capital investment in your business, including retained earnings, cash contributions and other assets.
- It’s recommended, when getting a business loan, that you have the professional resumes of any principal owners of the company. This displays the range of business relationships and endeavours, connections and, general reputation of the borrower within their industry.
Having this information ready is the first step in how to get a business loan. You need it available at your fingertips, prepared to support the answer to any questions a lender may have. Answering quickly shows a potential lender you are ready to complete your application, helping you get approval faster. Once your lender has all the information they need, they will review it and render a decision on your loan application.
This process can take anywhere between a week and 90 days. The Government of Canada has a comprehensive It can be challenging for start-ups and small business to be at a place where they qualify for funding.
A good rule of thumb is that if you’ve been in business for a least a year, your annual revenues surpass $100’000 and, your documentation shows your business is in a healthy state, you should reach out.