Bank loans for a small business

Small businesses are the backbone of the Canadian economy, but sometimes they need help too. The most obvious source of assistance are loans from banks – more specifically, the Big Five banks of Canada. These financial institutions generally offer the best interest rates and conditions on the market. The only catch is you have to meet the strict criteria for approval.

Compare Canada’s biggest banks for small business loans

The list below shows some of the biggest banks in Canada that offer business loans and Canada Small Business Financing Program (CSBFP) loans.

TD Canada Trust

With flexible loan options and a range of financing products to choose from, TD Canada Trust can help you get the money you need to start or grow your small business.

• Term loans. TD small business loans will be secured by what you’re buying or other business assets. You can choose between 1 to 5 year fixed interest rate terms. Amortization periods go up to 30 years, depending on the useful life of the asset. There is the option to use a variable interest rate instead, too. You have the option to make early payments of up to 10% per year without penalty.
• Canada Small Business Financing Program (CSBFP) Loan. Financing under this program is available for up to 90% of eligible costs of financed assets. Generally, the maximum amortization period is 10 years, but there are some offers of 20 years. Fixed and variable interest rates are available. A minimum personal guarantee of 25% is required.
• Lines of credit. TD lines of credit require collateral, typically in the form of business assets or real estate equity. The interest rate is variable. You’re only required to make interest payments on amounts you borrow. Repay the principal as it is best for you.
• Mortgages. Commercial real estate, mixed-use properties and rural properties not used for farming are eligible for mortgages with TD. Businesses can choose between a variable and fixed interest rate.

Royal Bank of Canada

Offering tailored financing solutions for you and your business, RBC provides suitable loan options for every budget.

• Term loans. RBC small business loans will be secured by the asset you’re trying to purchase. Choose between fixed and variable interest rates. Amortization aligns with the useful life of the asset with a maximum of 25 years. You can make early repayments of up to 10% annually without penalties. The smallest loan starts at $5,000.
• Canada Small Business Financing Program (CSBFP) Loan. The maximum amount you can borrow is $1 million for real estate and $350,000 for equipment and leasehold improvements. The loan is guaranteed up to 85% by the federal government. There are fixed and variable interest rate options. Amortization periods vary between 7 and 15 years, depending on the loan purpose.
• Working capital financing. RBC’s working capital product is called Asset Based Lending. It’s designed for fast growing, dynamic, highly leveraged companies. You can obtain a line of credit or a term loan secured by assets. Businesses can receive an advance of up to 90% of accounts receivable and appraised inventory value. The term is up to 5 years.
• Lines of credit. RBC offers two lines of credit. One has a higher credit limit and works like a traditional line of credit. The other has lower limits and rates, but is attached to a card for convenience purposes and offers RBC loyalty program perks.
• Mortgages. Finance commercial real estate with RBC business mortgages. The minimum amount of funding is $750,000. Fixed and variable interest rates are available.
• Equipment leasing. Lease up to 100% of equipment with RBC, including taxes and installation.
• Equipment financing. RBC offers a line of credit exclusively for equipment purchases. This product is also ideal for businesses purchasing multiple pieces of equipment or wanting to consolidate equipment-related debt.
• Financing for farmers. If you’re in the business of farming, RBC offers exclusive mortgages, loans and lines of credit for your unique needs. RBC also offers Canadian Agricultural Loans Act financing and specialized farming financing for residents of Quebec.

Scotiabank

With its wide array of flexible business financing solutions, Scotiabank can clear you for funding quickly and easily so that you can get back to doing what you do best.

• Term loans. Scotiabank small business loans have a maximum amount of $1 million. You can choose between fixed and variable interest rates. The maximum amortization period is 20 years. The term you received depends on the loan’s purpose.
• Canada Small Business Financing Program (CSBFP) Loan. Finance up to 90% of eligible costs using this loan. The maximum loan amounts are $1 million for property and real estate and $350,000 for leasehold improvements and equipment. The maximum amortization period is 20 years for property and 10 years for leasehold and equipment.
• Lines of credit. Borrow flexibility with a variable interest rate using the Scotiabank’s line of credit. The maximum credit limit is $1 million. Businesses are required to make minimum payments of 3% of the monthly balance.
• Equipment leasing. Lease equipment using a line of credit. You can finance up to 100% of the lease amount with a maximum transaction size of $25,000. You can choose between various interest rates and repayment schedules. This is ideal for businesses that frequently lease equipment.
• Financing for farmers. Scotiabank offers specialized mortgages, lines of credit and term loans for agricultural based businesses. It also offers financing under the Canadian Agriculture Loans Act.

CIBC

As one of the “Big 5” Canadian banks, CIBC gives businesses the financing they need to grow and expand their operations.

• Term loans. CIBC small business loans have a minimum borrowing amount of $10,000. Amortization periods can be as long as 15 years. The interest rate can be fixed or variable. Loans can be secured or unsecured. You can purchase equipment, cars and other assets using CIBC’s term loans.
• Canada Small Business Financing Program (CSBFP) Loan. Borrow up to $1 million for real estate and $350,000 for leasehold improvements and equipment. The interest rate is variable and you must make a personal guarantee of at least 25%.
• Mortgages. CIBC offers financing for real estate between $1 million and $40 million. You can choose between a fixed and variable interest rate. The maximum term is 10 years. CIBC will not finance hotel, motel, social clubs, banquet halls, schools, religious based properties, recreational facilities, car washes, restaurants and unstable properties.
• Lines of credit. Borrow a minimum of $10,000 with a line of credit. The interest rate is variable. You have the option to use collateral.
• Financing for farmers. CIBC offers specialized term loans, lines of credit and mortgages for farmers.

Bank of Montreal

Whatever the size of your business, BMO provides tailored financing solutions to help you stay competitive and realize your full potential.

• Term loans. BMO small business loans offer both fixed and variable interest rate term loans. The limit, term and repayment conditions depend on what you’re applying for.
• Canada Small Business Financing Program (CSBFP) Loan. Finance up to $350,000 for equipment and leasehold improvements and up to $1 million for real estate. BMO will finance up to 85% of the purchase.
• Lines of credit. BMO offers four different types of lines of credit. The first one is attached to a credit card and has a maximum borrowing amount of $120,000. The second uses collateral in your personal home as security. The third combines a mortgage with a line of credit, and the fourth has a minimum borrowing amount of $50,000 and is an all-in-one operating account.
• Mortgages. The maximum term is 10 years and the interest rate is fixed. There are no thresholds for borrowing amounts publicly available.
• Financing for farmers. BMO offers specialized financing for agricultural businesses including loans, lines of credit and mortgages.
• US dollar financing. BMO offers lines of credit and loans in US dollars through BMO Harris Bank.

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What types of business financing do banks offer?

• Term loans. These loans are the most popular form of business financing available. Once you receive your funds, you make fixed, scheduled payments with interest over a specified period of time.
• Canada Small Business Financing Program (CSBFP) Loan. These loans are backed by the government. For this reason, lenders can take more risk and offer lower interest rates. These are helpful financing solutions for start-ups and volatile businesses.
• Business lines of credit. A business line of credit is the most flexible source of financing available for businesses. You can borrow as much money as you need, so long as it doesn’t surpass the credit limit. You’re only required to make interest payments and you can make principal repayments when it’s best for you. The line of credit never disappears either which means you can access it indefinitely. This financing is ideal for ongoing projects, emergencies and cyclical businesses.
• Equipment financing. Get a loan to purchase the equipment you need for your business. This equipment will serve as the collateral for your loan. With collateral, the lender can be willing to extend more favourable rates and terms than a loan without collateral (unsecured loan).
• Real estate financing. Office space, storefronts, warehouses and other commercial real estate can be financed by a bank as well. In most cases, the real estate being purchased will be collateral on the loan, making this type of financing a mortgage.
• Working capital financing. This financing uses everyday assets, such as accounts receivable and inventory, to produce funds for everyday expenditures. Fast growing companies and seasonal businesses commonly use this type of financing.
• Credit cards. Many banks offer credit cards for business use. These credit cards have an option for higher credit limits compared to personal credit cards. In addition, they usually come with rewards programs and other perks. If your business expenditure isn’t too large, using a credit card to finance purchases is an option.

How to qualify for a bank business loan

Banks are known for their rigid requirements and selective approval processes. However, if you can get approved by a bank, your business loan is more likely to have a lower interest rate and favourable conditions compared to if you applied with another lender. For this reason, many Canadian business owners attempt to apply with banks before exploring other options.

Before you apply, it is helpful to understand what banks look for in an ideal candidate. Below is a list of common bank business loan requirements:

• Great credit. Banks assess both personal and business credit scores to estimate creditworthiness and risk. Your personal credit score should be high and your repayment history should be stellar. Your business score should be polished too, but it’s not as important as personal credit.
• Low debt levels. The less debt you have, the better. Banks don’t want to invest in businesses that already hold a lot of debt because they may not receive their loan back.
• Strong performance. If you don’t have steady income in your business, a bank is unlikely to approve you. It will worry that you don’t have the cash flow to make loan payments. Stable income for more than a year is a good starting point.
• Time in the business. Start-ups and relatively new businesses are riskier because they haven’t fully proved themselves yet. Businesses that have been in operation for longer than three years are generally perceived to be less risky. The longer you’ve been operating, the better you are at managing finances, operations and risks which is favourable to banks.
• Organized applications. One of the reasons lenders reject applicants is because they found errors or inconsistencies on their application. In the eyes of the lender, this may appear sloppy or like you don’t care. Taking the time to submit a clean, organized application can increase your chances of approval.
• Business plan. Supplying a business plan shows that you’re dedicated and have put thought into your business.

What you need to know about business loan requirements

What’s the difference between non-bank and bank business loans?

In terms of the loan itself, there aren’t many differences between non-bank and bank business loans. You will always go through some sort of application process. Once the funds have been dispersed, you start making payments to repay the loan.

The main differences between non-bank and bank loans for small business are in the details. Generally speaking, banks have the best loans available on the market. This includes interest rates, borrowing limits and conditions. However, their approval processes are strict because these offers are reserved for the most ideal borrowers. On the other hand, non-bank lenders generally have looser application processes and are willing to take on more risk in exchange for higher interest, lower borrowing limits and unfavourable conditions.

Comprehensive guide to business loans: Compare banks with 13+ other lenders

Alternative borrowing options for small businesses

If your bank loan is denied or you would prefer to borrow from another lender, you have options. There are four other lender types you can turn to for small business financing:

• Other traditional lenders. Credit unions and small traditional lenders are sub-categories in addition to big banks. They may have less strict requirements and more favourable terms.
• Online alternative lenders. These lenders operate entirely online and are willing to take on more risk. Application processes are usually very fast and requirements are less strict. However, expect higher interest rates and less ideal conditions in return.
• Private lenders. You can obtain financing from a private lender. These lenders don’t operate in a regulated market which means they can extend whatever interest rate and conditions they want. Be cautious of how you proceed with private lenders.
• Friends and family. Depending on how much you need, asking friends and family for financial help could be an option. Usually friends and family don’t charge interest and have flexible repayment terms.

Bottom line

Banks offer the most lucrative business loans and financing options on the market. However, getting approved can be challenging, especially if you don’t fit the bank’s traditional mold. Thankfully there are plenty of other business financing options available, you just have to do your research.

Frequently asked questions about banks for small business loans

• What's the difference between an CSBFP loan and a non-CSBFP loan?

  CSBFP loans are backed by the government for at least 75% of the loan, which means they agree with your lender to take on the burden of repaying at least 75% your loan if you find yourself in default. Because the lender is taking on less risk when giving you money, these loans tend to come with lower rates and fees. For more on the CSBFP here’s a link its official Government of Canada website.

  Non-CSBFP loans are conventional loans you’ll find with banks and online lenders. They aren’t backed by the government, and so lenders tend to protect themselves with higher rates and fees.

• Can I get small business bank loans with poor credit?

  Because banks tend to be more strict with eligibility and requirements than online lenders, you might not have much luck getting a small business loan if you have poor credit. You should consider improving your credit score, putting up more security to guarantee the loan or having a guarantor/cosigner back the loan with you to strengthen your application.

• Are franchise owners eligible for CSBFP loans?

  Yes. Franchisees are eligible to apply for a CSFBP loan, up to $350,000 of which can be put towards leasehold improvements and up to $500,000 of which can be put towards the property the franchise will occupy. (These are the standard loan parameters for all CSFBP recipients.)

  For the most part, you may not use CSFBP money for costs related to acquiring a franchise (see below) – you’ll have to find a different way of paying for things like brand licenses and franchise fees. CSFBP funds are meant instead to help cover the cost of physically establishing a franchise, supporting its operations and/or helping it grow.

  Eligible expenses include:

  • Buying or upgrading new or used equipment
  • Undivided shares of a building or equipment used in the business’s operation (meaning, a CSBFP loan recipient cannot share a CSBFP-funded asset with owners of other businesses)
  • Architectural, engineering and design fees related to property financed by CSBFP money
  • Contractor’s profit (must be shown distinctly in the contract or invoice)

  • Freight and installation of a CSBFP-financed asset
  • Taxes on non-refundable items
  • Landscaping
  • Paving a parking lot
  • Water supplies and drainage equipment
  • Expenses or commitments made within 180 prior to the date the loan was approved

  Ineligible expenses include:

  • Franchise fees
  • Brand and trademark licensing fees
  • Most permits and licenses (i.e. building permits) related to eligible CSFBP expenses
  • Business plans
  • Professional fees (legal, accounting, appraisal incorporation costs etc.)

  • Warranties
  • Working capital (i.e. money you use for day-to-day operations)
  • Training costs
  • Supplies (paper, pens, staplers, uniforms etc.)
  • Property or equipment for personal use (family home, non-commercial vehicle etc.)

  See the Government of Canada website for more information.