Online lenders have taken the small business lending scene by storm. But don’t fully discount the big guys – Canadian banks still offer competitive borrowing options. Here’s our guide to banks for small business loans.
There are still many reasons to choose a bank or credit union over an online lender. For one, they offer government-backed Canadian Small Business Financing Program (CSBFP) loans which you can read more about below. These big financial institutions also tend to offer higher lending amounts than their online counterparts do.
But if you’re a new business, you could find that banks enforce stricter eligibility requirements than an online small business loan lender will. They might not even consider you if your business isn’t at least a few years old and pulling in significant revenue.
Read on for a comparison of the big banks’ offerings for small business financing plus see how banks stack against online upstarts when comparing your options.
What’s the difference between non-bank and bank business loans?
You won’t find anything new or exciting when looking for a small business bank loan. Typically, banks offer term loans, lines of credit and equipment loans — your business loan nuts and bolts. They also tend to offer much larger borrowing limits that ranging from the tens of thousands to the millions.
Newer to the scene, online-only lenders offer more diverse lending options — and they’re more willing to take risks. They could be a better bet if your business isn’t yet 2 years old. You may end up paying more in interest and fees, but you could receive your approved funds faster.
What types of business financing do banks offer?
- Term loans. These popular loans allow you to pay back a fixed amount of money with interest over a specific number of years.
- Canada Small Business Financing Program (CSBFP) Loan. These government-backed loans can be helpful for small businesses struggling to get off the ground. Lenders can take a risk and offer lower interest rates.
- Business lines of credit. Business lines of credit are a flexible way to tap into cash when you need it. You’re only on the hook for what you borrow — great if you think your business might run into a rough patch.
- Equipment financing. Secure your loan with the equipment you want to buy. With collateral, the lender can be willing to extend more favorable rates and terms than an unsecured loan.
- Real estate financing. If you need financing for a storefront or office space, you’ll usually see real estate financing as a term loan — though some banks offer lines of credit. You’ll see both fixed or adjustable rates, and they’ll sometimes require collateral.
Compare Canada’s top banks for small business loans
The “Big 5” banks in Canada offer a wealth of financing options for small businesses and tend to dominate the Canadian Small Business Financing Program (CSBFP) lending scene.
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.
- Business loans. TD’s business loans are best for large one-off purchases and expansion or renovation costs. They’re typically secured with an asset and come with fixed interest rates. Terms last between 3-5 years and you can borrow up to a million dollars.
- Canada Small Business Financing Program (CSBFP) Loan. Similar to business loans, these loans are good for one-off purchases. The only difference is that they’re secured by the government instead of an asset you put forward. They come with either a fixed or floating interest rate, with terms lasting up to 20 years.
- Lines of credit. Designed to fund working capital costs and daily operations, TD’s lines of credit come with variable interest rates, and you’ll only be charged interest on the amount you borrow. You can keep a balance of up to $500,000 in your “wallet” to access whenever you need.
- Business mortgages. If you’re looking to buy or refinance a business property, you can look into a commercial mortgage. Borrow up to one million with a fixed interest rate and a 5-20 year term. You can also lock in specialized funding for rural properties if you want to buy or expand a 5+ acre property and your main income doesn’t come from farming.
Royal Bank of Canada
Offering tailored financing solutions for you and your business, RBC provides suitable loan options for every budget.
- Term loans. These loans can be used to make large purchases, finance equipment, consolidate debt or increase production capacity. They’re available for small and large businesses at fixed and variable interest rates, with loan terms typically lasting up to 7 years.
- Canada Small Business Financing Program (CSBFP) Loan. Ready-made for small businesses and backed by the government, CSBFP loans are typically used for large purchases. They come with fixed and floating interest rates, and terms last between 7-15 years depending on how you use funds.
- Asset-based loans. Best fit to help cover gaps in your cash flow, these loans are designed for medium-to-large businesses and are typically given out based on the appraised value of your company’s fixed assets. They come with 2-5 year terms, and interest rates and lending amounts vary.
- Lines of credit. Supplement your cash flow with a line of credit that gives you instant access to the funds you need for your business. Amounts start at $10,000 and interests will vary according to the terms laid out in your contract.
- Business mortgages. If you want to buy or refinance an income-producing property, RBC can provide over a million dollars in funding. Eligible properties need to meet a long list of eligibility criteria to qualify, such as appraisals and environmental reports. Mortgages come with competitive variable and fixed rate options.
- Equipment financing options. Access a revolving line of credit to purchase multiple pieces of equipment or consolidate your existing leases. You can also get up to 100% equipment financing (including taxes and installation) with tailored leasing solutions.
- Targeted financing for farmers. Explore loan options specifically designed for Canadian farmers. These include Canadian Agricultural Loans, Farm Management Lines of Credit and RoyFarm Agriculture Business Mortgages.
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. Term loans can help you fund major purchases or working capital costs. Based on your budget and business goals, you can choose either fixed or variable rates with repayment periods lasting up to 15 years. You can also prepay your full or partial balance at any time for no additional fee.
- Canada Small Business Financing Program (CSBFP) Loan. These loans are backed by a government guarantee and are typically used by new and emerging businesses to fund large purchases up to a million dollars. They come with fixed and floating interest rates and last up to 10 years for equipment purchases and 20 years for property.
- Lines of credit. If you need to fund ongoing expenses, you can take out a revolving line of credit that offers competitive floating interest rates tied to Scotiabank’s prime lending rate. You can borrow up to one million dollars but make sure you’re prepared to make a minimum monthly repayment of 3% of your outstanding balance.
- Equipment leasing. If you’re looking to buy new equipment, you can access a variety of interest rates and currencies with Scotiabank’s equipment leasing options. Leases start at $25,000 and last between 2-7 years, with up to 100% financing for purchases, delivery and installation costs.
- Special financing for farmers. Scotiabank offers loans and lines of credit specifically for farmers. These come with fixed and fluctuating rates and are designed to help you purchase essentials for your farm (like machinery, land and livestock) as well as cover your daily operational costs, especially during seasonal lulls.
As one of the “Big 5” Canadian banks, CIBC gives businesses the financing they need to grow and expand their operations.
- Term loans. Fixed- or variable-rate term loans are designed to help you acquire assets, consolidate debt and smooth out cash flow. You can borrow up to one million over 7-10 years. There are both secured and unsecured options and you can get funds in either Canadian or US dollars.
- Canada Small Business Financing Program (CSBFP) Loan. These loans are typically used by new and emerging businesses that need access to capital but don’t have the assets to secure it with. They offer up to $1,000,000 for real estate and $350,000 for leaseholds and equipment, usually taken out over a 7-10 year term.
- Business lines of credit. CIBC’s lines of credit give you quick access to financing to fund daily operations and seasonal fluctuations in cash flow. You’ll get variable interest rates and your funds can be delivered in multiple currencies. Just be aware that you’ll need to pay a monthly admin fee and a one-time setup fee to get started.
- CIBC Business Home Power Credit. Use your home to secure a loan of $50,000 or more using the Home Power Credit. You’ll get a variable interest rate (based on CIBC Prime) and you’ll have the option to make interest-only payments if you want. Term lengths vary and will depend on what you decide with the bank.
- Special financing for farmers. Choose from a line of credit, term loan or business mortgage to help expand your farm operations and manage cash flow. All of CIBC’s agricultural financing comes with flexible terms to help you meet your business goals without putting too much pressure on your bottom line.
- Asset-based loans.These loans are designed for medium-to-large businesses and come with better terms than traditional financing. The amount you’ll receive depends on the appraised value of your company’s fixed assets. Term lengths and interest rates will vary based on the size and profitability of your business.
- Franchise financing If you own or manage a franchise and you want to expand your operations, CIBC can provide a team of experts to help you find the right borrowing solutions. Loans for franchises are specialized and come with different terms, interest rates and loan amounts depending on your business.
- Real estate financing. This financing is for companies that have outgrown their current headquarters or have specific property needs. You’ll work with a team of advisors to negotiate your financing needs so you can get the best deals on buying and selling property.
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. Lock in a small business loan with a fixed or variable rate that you can pay off in monthly installments. Get up to $500,000 in funding to cover large purchases or consolidate debt, with a range of repayment options and term lengths to suit every budget.
- Canada Small Business Financing Program (CSBFP) Loan. Finance your business expenses up to $1,000,000 with this government-guaranteed loan. You don’t need to secure your loan with collateral and you can qualify for terms up to 10 years, depending on what you need the money for.
- Lines of credit. Secure a line of credit to fund your daily operating costs and give you the cash flow you need to cover seasonal downturns. You can even use the equity in your home to bring down costs of borrowing, or access up to $120,000 through a special “Credit Line for Business” Mastercard.
- Commercial mortgages. Purchase or expand your business property with a commercial mortgage. You’ll get a wide range of fixed-term rates with repayment periods lasting between 1-10 years. You’ll also have the option for renewal.
- Agricultural financing. If you own a farm, you can get access to specialized financing products designed to meet your unique needs. These loans provide more flexible terms to accommodate business expenses like purchasing farm equipment, buying seed, maintaining livestock and purchasing property.
- US Loans from BMO Harris Bank. Borrow up to $100,000 in US dollars if you do business across the border and want to avoid currency exchange rates. You’ll get a predictable repayment schedule but your repayments will need to be made in US dollars to get the full benefit of this type of loan.
How to qualify for a bank business loan
Banks are notoriously more selective than other lenders — and becoming even more picky now that they have new competition from financial technology startups that are typically faster. But that doesn’t stop most Canadian business owners from applying. In fact, banks may turn down as high as 20% or more of business loan applications.
What’s so special about the applicants who get approved? Typically, they have:
- A well-organized and error-free application. In fact, one of the top reasons lenders reject applicants is because they found errors or inconsistencies on their application. See the top 5 reasons most business loans get rejected.
- Excellent personal and business credit scores. It’s standard for banks to require some kind of personal guarantee from each business owner, so it’ll consider your personal credit score as well as your business’s credit score.
- Years in business. A business that’s been around for decades has the kind of financial track record that banks like to see in an applicant. Typically, your business needs to have at least a few years under its belt to be considered.
- A strong business plan. Having a strong business plan can make your application really shine. It shows where you’ve been , what you’re about and where you predict to go, giving your bank reassurance that you’ll be able to repay your loan based on numbers.
Alternative borrowing options for small businesses
We get it: banks are easy, safe and familiar, and going elsewhere for funding might not occur to you. But if you’re serious about that loan, you might want to take a peek at top online lenders.
Online-only lenders don’t have the overhead costs of traditional banks — meaning they can sometimes extend better deals — and they tend to offer more variety to more types of businesses. Even if your business is newer or has specific financial needs.
Compare the terms, rates and eligibility of these online lenders when deciding on your next business loan.
Compare business financing from online lenders
Did you know?
You can take out a personal loan to cover smaller business expenses of a few thousand dollars. Whether to buy stand mixers for your fledgling bakery or yarn for your Etsy sweater store, an online personal loan could offer the flexibility of a loan without the high minimums of a business loan. But take caution: personal loans are in your name, not your business’s name — meaning you’re personally on the hook for repayments.
Banks have been the bread and butter of mom and pop business financing for centuries. But dwindling borrowing options and strict eligibility requirements have led to a proliferation of non-bank lenders entering the market, often giving big-name lenders a run for their money.
It’s likely that the popular, established diner down the street can still get a bank loan. But if you’re a newer, less lucrative business, you might have a harder time getting funding. Know what you’re eligible for by considering all of your options before taking out a business loan.
Frequently asked questions about banks for small business loans
Ask an Expert
You must be logged in to post a comment.