How to Qualify for Small Business Loans in Canada



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Small business loans can be difficult to access for the average Canadian entrepreneur. Canadian banks are known for their conservatism, and the application process for a loan can feel like you’re being processed through a meat grinder.

The good news is there are many ways to access the funds you need for your startup or small business. Below is a complete guide to access small business loans in Canada.

The Pros and Cons of Small Business Loans

Deciding to take a loan for your small business can be tough, especially for a newbie entrepreneur. There is a variety of debt funding and equity alternatives that you can use to get your business up and running, but they’ve all got their good and bad features. These are a few things to consider before you sign off on a small business loan.

Advantages of a small business loan

  • Equity Retention

Whenever you take a loan, your primary aim is to keep as much equity as you can in your company. Your company is the fruit of your hard work and you don’t want to lose controlling shares in it.

One huge advantage of accessing funds via loans is that you’re not obliged to trade away part of the controlling shares of your company, as is the case with equity financing.

  • Autonomy

A small business loan keeps you in control. During the application, the lender may ask you about your plans for the money. However, the lender isn’t overly concerned with the details of how the loan will be used.

  • Better Terms

There’s a likelihood for applicants to get better terms such as a higher credit limit or lower interest. Other options may have a lower credit limit and high rates, which makes the loan difficult to pay off.


  • Credit History

If your small business has a bad history of using credit, this could severely affect your loan options. Traditional lenders may not be so inclined to give you a loan, and even when they do, you won’t get the best terms.

  • Personal Guarantee

If your business has a limited or bad financial history, your lender may need extra assurances you’ll pay off the loan by asking for a personal guarantee.

This guarantee may be tied to you or your business. If you cannot fulfill the conditions of your small business loan, you may end up losing valuable assets, including personal and business assets.

  • Economy Impact

Putting an application for a small business loan may be influenced by economic factors that you have no control over.

If there’s a financial crisis, and limited availability of loans, it is only logical for traditional lenders to exercise extreme caution when approving funds for a small business owner.

  • Higher debt-to-equity ratio

It comes with the territory that you’ll have a higher debt on your books, which doesn’t do well for your debt-to-equity ratio.

Your D/E ratio tests your liabilities compared to your equity and shows you how much financial leverage your business can wield.

Types of Small Business Loans

In Canada, there are quite a variety of loans for the budding entrepreneur and veteran business owner to choose from. Some of these options are outlined below.

  • Traditional Lending Institutions

Many young entrepreneurs do not find it easy to access small business loans. Grade “A” lenders often require lengthy credit history, as well as collateral to qualify for loans. And if your business is a startup, accessing vital funds become more difficult.

If you’re able to qualify, then traditional loans from Canada’s big banks are a cost-effective and dependable way to inject vital funds into your business.


If you go for a loan from a traditional lender, make sure you read the terms carefully. Although they may vary from bank to bank, it’s possible to get a better deal by doing more research. Some of the terms you ought to pay attention to include:

  • Application fees.
  • Interest rate.
  • Usage restrictions.
  • Personal liability.
  • Repayment period.

Traditional lenders rarely approve small business loans below C$50,000 because the service costs usually eat up the profits. And that’s why we have microloans.


A microloan provides lesser funding to Canadian business owners, stimulating job creation in their respective communities. Microloans may vary depending on the terms, but they are mostly:

  • Short-term loans.
  • Loans within the range of C$500 – C$50,000.
  • Tailored for business with low startup costs, sole proprietorship, companies with few employees, and businesses without a credit history.

The funds can be channeled into various aspects of your business, including fixtures, purchasing equipment, or working capital.


One of the major drawbacks of a microloan is the size. It isn’t as hefty as most of the alternatives on this list. As with all small business loans, you must study the terms carefully.

The fact a microloan may be small doesn’t mean it can’t attract a high-interest rate. Some microloans have rates that are higher than bigger loans. A strong financial history can give you help you access a wider variety of microloans.

An example of a microloan is the BDC small business loan. Designed by The Business Development Bank of Canada (BDC), small-time business owners can receive up to C$100,000 for their businesses.

Once you submit your application online, you can get your funds within two business days. It’s possible to defer payment, and business owners can have a repayment period of up to five years.

Apart from these, microloans are of great benefit to Canadians who need smaller loans than traditional lenders are willing to offer.

The BDC also offers a loan package for newcomers to Canada. The Newcomer Entrepreneur Loan is for newcomers who have little or no credit history. Newcomers who qualify can access funds up to C$50,000.

Government Small Business Loans

The Canadian government offers financial stimulus programs across the country. The Canada Small Business Financing Program is arguably the most important of the lot.

It was designed to give small businesses better access to affordable loans by spreading the risk with traditional lenders. The Industry of Canada asserts that over the past decade, small businesses across Canada have enjoyed C$9.6bn through assets-based financing schemes.


If you run a business that returns an annual turnover of less than C$10 million, you might be eligible for the loan. The following enterprises aren’t eligible for the CSBFP.

  • Agricultural businesses
  • Non-profit organizations
  • Charities
  • Religious organizations

Likewise, you can’t spend your funds in R&D, working capital, goodwill, inventory, or franchise fees. The ceiling limit is C$1 million to finance expenses like equipment, land, buildings, and vehicles.

How It Works

You apply for the CSBFP through your bank. They are the ones who’ll ascertain your eligibility. Once you’ve completed your application, the bank will register your loan with the Canadian government.

The big draw with the CSBFP is the guarantee provided by the government. The bank is, therefore, able to offer you better terms.

Online Loans

It’s easy to access online loans through your smart devices. Companies like Lending Loop provide loans to small businesses. Once your application is successfully reviewed, you’ll be able to access loans graded from A to E.

Apart from peer-to-peer lenders, you can get a small business loan through independent online companies such as Think Capital or iCapital. Depending on your application, it’s possible to receive up to C$100,000 or more for your business.

If you decide to go for an online loan, remember to study the terms as that can be the difference between profitability and closing down your business.

Getting Your Small Business Loan

Now you know the options available to you, below are steps you need to succeed in your application for a small business loan in Canada:

  1. Know the Right Loan for your Business

Do your research on all the loan options above. Certain loans may be the best fit for your enterprise, location, or level of growth. Understand the terms of each loan. Some loans offer a more flexible repayment plan than others. Other loans may have a longer payment period. Be sure to inquire upfront before starting on your application.

  1. Qualification

To meet all the requirements of a small business loan, these are some things you’ll need:

  • A business plan.
  • An excellent credit history.
  • Cash flow projection, financial statements, and sales reports.
  • Collateral

Final thoughts

The loan options above all have good and bad features. The ball is in your court to select the option that works best for your business. It’s not enough to consider one option but to do your research on all, considering the rates, repayment plan, and terms before making a final decision. Getting the right funding is a crucial step on your journey towards financial success.

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Kareena Maya

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Kareena Maya is a freelance writer focused on the personal finance and travel spaces. He frequently writes about credit cards, banking, student loans, insurance, travel rewards and more. His work has been featured in publications such as Forbes Advisor, Bankrate, Credit Karma, Finance Buzz, The Ascent and Student Loan Planner.

Kareena Maya is a freelance writer focused on the personal finance and travel spaces. He frequently writes about credit cards, banking, student loans, insurance, travel rewards and more. His work has been featured in publications such as Forbes Advisor, Bankrate, Credit Karma, Finance Buzz, The Ascent and Student Loan Planner.