Small business loan requirements can include a range of important documents and financial details. Banks have a much more involved application process, while online lenders are more flexible because they ask for less information overall.
Below is a comprehensive list of small business loan requirements. Requirements depend on the lender, and you may not need to provide all of these.
Lenders typically examine your personal credit report when you apply, including the personal credit scores of the co-owners or stakeholders of your business. Lenders often require a personal score of at least 650 from successful loan applicants. If you’re already in business, prepare to submit a credit report for your company as well. Overall, lenders want to see that you’re responsible with your debts, largely because it translates directly into how well your business will be able to repay a loan.
To qualify for most business loans with online lenders, you’ll need to be in business for at least six months to a year. Your typical bank could require you to be in business for at least two years. If you’re a startup or your business hasn’t begun operations, you may find it harder to get a loan. You can consider a start-up loan or apply for a loan through the Canada Small Business Financing Program (CSBFP). More details about this program can be found below.
Lenders often require businesses to bring in annual revenues of $80,000 or higher before they will consider your application. Monthly, the minimum revenue is usually around $5,000 to $10,000.
It sounds counterintuitive, but some lenders will consider too much personal credit a risk – after all, you could turn to that credit if your business runs out of money. It’s worth paying down your existing personal debts before applying for a business loan to show lenders that you aren’t too deep in the red.
Your business’s debt-to-income ratio is important to creditors too. To be sure that you can meet repayment requirements, some lenders look for a total income that’s at least 1.25 times greater than your total expenses. The higher your cash flow is to pay off your debts, the better.
If you’re applying for a secured business loan, you may need to identify an asset – equipment, inventory or real estate – to back the loan against default. If you prefer not to provide collateral, you’ll need to compare unsecured business loans. You may also be required to sign a personal guarantee that holds you accountable if your business is unable to pay its debts.
You may need to specify exactly how you plan to use the money you borrow. Some lenders may limit how you spend the approved funds. For example, most equipment financing loans restrict you to only use the funds to purchase equipment.
The type of industry your business is categorized in is another key factor for many lenders. Industries like gambling, marijuana or adult entertainment may be seen as risky or a theme your lender doesn’t want to be affiliated with. Seasonal industries like golfing, camping or landscaping, may also scare lenders away from financing your business.
Expect to be questioned about the ins-and-outs of your business when you’re applying for a loan. Show up with a business plan prepared that outlines your business’s objectives, how you’ll use borrowed funds and what your projected cash flow will look like over the next few years. You can include market research about your industry to show your understanding of how your business will fit in.
Online lenders have more flexible small business loan requirements compared to traditional lenders like banks and credit unions. But there is a catch: Because they’re easier to get approved for, they also tend to have higher interest rates.
Below is a summary of small business loan requirements from different lenders in Canada.
| Lender | Eligibility requirements | Key features | |
|---|---|---|---|
| SharpShooter | - Have a Canadian bank account - Place of business located in a Canadian province/territory - In business for at least 100 days - Show a minimum of $4,166 in monthly deposits ($49,992/year) - No minimum required credit score |
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| Swoop |
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| Lending Loop | - Have a Canadian bank account - Place of business located in a Canadian province/territory - At least 1 year in business - At least $100,000 in annual revenue - 600+ minimum credit score - At least 50% of the directors of the corporation should be Canadian residents - All directors should have reached the age of majority in the province/territory of residence of the applicant |
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| Merchant Growth | - Operating for at least 6 months - Canadian based business - 550+ credit score - $10,000 in monthly sales |
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| Loans Canada | - Operating for at least 100 days - Operating Canadian Business Bank Account - Over $10,000 in monthly sales ($120,000/year) |
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| Journey Capital | - 6 months in business - Minimum $100,000 annual gross revenue - 600+ credit score |
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| Driven | - Canadian business with 600+ credit score - In business for at least 6 months - Annual revenue of $120,000+ |
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| CIBC | - Industry experience - Personal financial investments in your company - Positive revenue for at least 12 to 24 months - Good credit score - Detailed business plan |
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It’s hard to say which factor is the most important when it comes to your business loan, with each lender weighing criteria differently. For one lender, it could be your business’s minimum annual revenue that decides the success of your application, while another lender could look more closely at how long you’ve been in business, your personal credit score or the collateral you’re able to offer up.
In the end, it’s best to research the specific lender you’re interested in and ask exactly what they’re looking for when it comes to approval.
Comprehensive guide to business loans
Many larger financial institutions, like banks, will require you to make an appointment to complete an application in person. However, newer online lenders automate the process with the convenience of a completely online application.
To initially complete your application, you’ll typically submit:
After applying for a business loan, a representative will likely call you to go over your application. To confirm the information you’ve provided in your initial application, you’re often required to upload further documentation of your business’s financial details.
Whether you’re applying for a business loan via an online lender or a traditional lender like a bank, here’s what you may need to provide (although it will depend on the lender):
If your lender provides the option to upload information online, you can protect the integrity of your documentation by submitting it as a PDF. You may also be required to fax copies of important documents or scanned ID’s before a lender will approve your application.
Although a business plan may seem like a lengthy document, if you break it up into sections and focus on one at a time, you’re well on your way to a convincing position. Use our checklist to make sure you’ve ticked all the important boxes of what an excellent business plan is.
Knowing exactly why your business needs financing is key to deciding what type of loan you need, which lender to go with and how much it’s going to cost you.
Do the math and add up your expenses. This will help you narrow down lenders: Most have minimum and maximum borrowing amounts. It’s generally not a good idea to borrow more than your business needs because you’ll end up paying more in interest.
Before you apply, check your personal and business credit reports for errors. If you notice anything wrong, contact the financial institution and the credit bureaus to have it changed. Doing this before you apply can not only up your chances of being accepted, but it can also help you qualify for more favourable rates and terms.
| Request a copy of your personal and business credit reports from Equifax, TransUnion and Dun & Bradstreet. |
|---|---|
| The older, the better. Lenders often require you to have been in business for at least a year or two. |
| Your industry could affect the type of loan you qualify for. Some lenders have restrictions for lending to business in industries such as gambling or cannabis. |
| Ask for only as much as you think you’ll need based on your assessment as well as past business needs. |
| Be ready to discuss with your lender how you’ll use your funding. |
| Lenders often require a minimum annual revenue of $80,000. If you’ve been in business for less than a year and are applying for a startup loan, minimum monthly revenue requirements typically start around $7,000. Lenders may also set maximum annual revenue requirements. The Canada Small Business Financing Program (CSBFP), for example, has a maximum annual revenue cap of $10 million. |
| Lenders typically like to see at least two years of your business’s bank statements. If you are a young company, provide as much information as you can to support your application. |
| Prepare a year-to-date revenue statement that documents your company’s net sales, cost of goods and administrative expenses. |
| Balance sheets provide a picture of your business’s overall assets, liabilities and shareholders’ equity. |
| Lenders will want to confirm your income and revenue reported to the CRA —on both your business’s and your personal returns. |
| A solid business plan boosts your credibility and helps convince lenders that you’re worth their investment and that you’re serious about creating a successful business. |
| Reference free templates online to assemble a comprehensive account of your business’s outstanding loans and other debts. |
| Lenders will want to know your projections for expected revenue in the coming months. |
| Be ready to document inventory, real estate or equipment that you intend to offer as collateral if applying for a secured business loan. |
| You may be required to submit documentation of your employee and payroll records when applying for your business loan. |
Qualifying for one of these loans comes with an involved qualification process and strict eligibility criteria. Since you can’t use these loans to finance certain types of businesses, you’ll need to prove that your business meets the requirements. You’ll also need to use the funds for specific purposes – so be sure this type of funding makes sense for your business.
You can learn more about the Canada Small Business Financing Program (CSBFP) here.
Depending on the size of your business and desired loan, you may qualify for more than one type of financing from a variety of lenders. Keep in mind that traditional banks often have stricter business loan requirements and application processes. You could find that online lenders are a better option for your financial needs, especially since they usually offer comparable – or better – interest rates and fees, less strict eligibility criteria and an easier application process.
Before applying for a loan, explore your financing options and the business loan requirements of various lenders to find a business loan that best fits your situation and helps you remain profitable and successful in the years to come.
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