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7 Questions To Answer Before Applying For A Small Business Loan In Canada

Updated: Mar 25

Applying for a small business loan in Canada may seem completely daunting at first, but it becomes more manageable once you break down the process into steps. Before applying for a Canadian small business loan, make sure you know the answers to these seven key questions.


1. Why do you want the loan?

This question may seem trivial, but it’s the first step to determining what business loan would best suit your needs. Financial institutions offer various types of small business loans with different terms and conditions. Common loans include the Canadian Small Business Financing Loan Program (CSBFL), Bank Loans, and alternative vendors. Understanding the requirements will help you to prepare for successfully negotiating with the right lender to get the loan that best answers your needs.


2. How much capital do you want to borrow?

You may be thinking the more money the merrier. But take on too much debt and you may be nodding along to “Mo Money Mo Problems''. There is a fine line between too little and too much debt for a small business. Thankfully, the question of how much becomes easier once you know what you want to use the loan for. It’s important to make sure you borrow enough so that you can fund your objective. However, it is just as important to make sure that you do not take on more debt than you can afford. Setting up a financial forecast using ReInvestWealth’s free business projection template can help you strike this balance.


3. How do you plan to use the borrowed capital?

Once you know how much capital you want to borrow, you must know how you plan to use the capital. More than likely, a lender will ask you this question before lending you the money to ensure that it will be a profitable operation and that they will be able to safely claim their fees at the end of their service period. Once again, ReInvestWealth's free projection template will allow you to budget accordingly.


4. What type of business loan do you want?

There are several types of small business loans that you can apply for. Once you know why you want the loan, it will be easier to select the right one. For example, there are different loans for start-ups, business acquisitions, equipment investments, growth and transition, and many others. You can get up to $100K online​ from BDC and is the loan we recommend most business owners to apply first.


5. Terms and conditions for your loan?

Terms and conditions will often be predetermined depending on what type of loan you are applying for but can vary greatly depending on which financial institution you loan from. Other than the interest rate, you must negotiate the amortization period, the amount of capital, debt covenants, collateral, and financial reporting requirements. It’s important to shop around for a Canadian small business loan so you get the best terms and conditions, which will save you money in the long run.


6. What requirements are required to get a business loan?

The key to creating a successful business plan lies in planning. Have a business plan ready before the negotiation and include financial statements as well as financial projections. Financial institutions need these documents to determine whether you will be able to pay off the loan which is oftentimes the most important part of applying for a loan. Online accounting software, such as ReInvestWealth, can help you automate many of these processes. A sturdy business plan will ensure you qualify when applying for a Canadian small business loan and your startup will generate enough revenue to pay it back.


7. Which financial institution do you want to acquire your loan from?

Choosing the correct financial institution will impact your terms and conditions greatly, so you must choose wisely. Many well known financial institutions that offer small business loans include The Royal Bank of Canada (RBC), Scotiabank, TD Canada Trust, Canadian Imperial Bank of Commerce (CIBC), Bank of Montreal (BMO), Business Development Bank of Canada (BDC), and various other lenders. For example, RBC focuses on term loans, commercial mortgages, and supplementary cash flows while Scotiabank offers a variety of leases and mortgages for businesses, agriculture, and financing an income-generating property.


Once you’ve answered these seven questions, you’re ready to successfully qualify and negotiate for a loan. Remember, before you apply, make sure to do your research and find a lender that best suits your business needs. If you require professional assistance from a CPA, you can book an appointment with us at ReInvestWealth.


More Frequently Asked Questions


What are the eligibility criteria for small business loans in Canada?

Eligibility criteria for small business loans vary depending on the lender and the type of loan. Generally, lenders will consider factors such as your credit score, business history, revenue projections, collateral, and ability to repay the loan. It's important to review the specific requirements of each lender before applying.


How long does it take to get approved for a small business loan in Canada?

The approval process for a small business loan in Canada can vary depending on the lender and the complexity of your application. Some lenders offer fast approval processes, while others may require more time for review and underwriting. On average, it can take anywhere from a few days to several weeks to receive approval for a small business loan.


What are the interest rates for small business loans in Canada?

Interest rates for small business loans in Canada can vary depending on factors such as the lender, the type of loan, and the borrower's creditworthiness. Generally, interest rates for small business loans range from around 4% to 20% or more, depending on the risk involved. It's important to shop around and compare rates from multiple lenders to ensure you get the best deal.


Are there government programs or grants available to help small businesses in Canada?

Yes, there are several government programs and grants available to help small businesses in Canada. These programs offer funding, support, and resources to help entrepreneurs start, grow, and succeed in their businesses. Some examples include the Canada Small Business Financing Program, the Canada Emergency Business Account (CEBA), and various provincial and municipal grants and incentives.


Can I use a small business loan to finance startup costs?

Yes, small business loans can be used to finance startup costs, such as equipment purchases, inventory, marketing expenses, and working capital. However, lenders may require additional documentation and financial projections to assess the viability of your business and the likelihood of repayment.


What happens if I can't repay my small business loan?

If you are unable to repay your small business loan, it's important to communicate with your lender as soon as possible. Depending on the terms of your loan and the lender's policies, options may include restructuring the loan, negotiating a repayment plan, or seeking alternative financing options. Ignoring the issue can lead to default, which may result in legal action and damage to your credit rating. It's important to address any financial difficulties proactively and seek assistance if needed.



Written by: Claire Ma


ReInvestWealth Founder and CEO: Behdad Karimi Dermeni


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