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How to get a business loan in Canada

How to get a business loan in Canada 

New and experienced entrepreneurs need financial support for their potential or existing ventures. As a solution, financial institutions offer loans to assist business owners. As an entrepreneur, knowing how to get a business loan in Canada and the options available to you is important. 

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What is a business loan?

A business loan is an advancement of funds, usually a lump sum, that you can use towards significant business expenses. It can be used to pay staff wages, purchase inventory, expand a business, improve cash flow, or cover other unexpected costs.  As with any loan, a business loan will require regular payments to repay the amount borrowed plus accrued interest.  

Lenders are willing to give business owners money upfront if it’s paid back within an agreed-upon timeframe. Depending on the lender, getting approval could involve examining the company’s financial history and assessing your personal net worth. Once approved, you make monthly payments with interest, and the loan provider expects you to have fully repaid it within the agreed period. 

How does a business loan work?

Business loans have multiple purposes, but the exact reason must still be associated with your company’s expenses or investments. The needs of a company have a lot of variation, so the following are just a few examples of what your business could use the funds for.  

Both components are part of startup costs, but more established businesses may need the loan to buy the latest business equipment.

The loan can cover the costs, whether you’re building a whole new unit or renovating an existing space. 

Advertising is an investment that may require additional financial support. 

First-time entrepreneurs may feel more comfortable having an advisor with them as they start their new business, or experienced business owners may need to hire more staff.

Also known as working capital, improving your cash flow can help you manage your business’ income more efficiently

Steps to get a business loan

Getting business loans has a similar application process to other kinds of loans. The difference will be that some lenders may require you to provide the business’s financial statements and credit history. 

Determine how much you need

Know how much funding you need because too little requires another loan with more interest, and too big may take too long to repay.

Find a lender

Banks, credit unions, and alternative lenders are all possibilities, and you can choose one based on their offers and eligibility requirements

Gather documentation

Bank statements, tax returns, and insurance policies are all pieces of information that you may have to provide along with your business loan application.  

Apply for the loan

Most lenders provide an online application directly on their website, but you may also call them or meet them in person if you prefer those options.  

Wait for the loan application results

The outcome may not be revealed until much later. Some lenders will only take a few days to a few weeks, but some may take months. 

Once you get your loan, you will begin loan payments almost right away. The frequency of your payments depends on your agreement with the lender.  

What are the requirements for a business loan? 

Each lender has their own specific criteria and qualifications. Some lenders like Alpine Credits do not need to see your financial statements but do require collateral, while some are the opposite. Loan providers are usually transparent about what they want to see, which will help you choose a lender that’s right for you and your business.  

  • Good credit score— some lenders require you and your business to show good credit scores and good credit history. To be approved for a business loan, you may need to have a score of at least 660 and the business will need to have a strong track record of making payments.  
  • High debt-service coverage ratio— companies have debt just like people do, and the ratio determines the business’s financial health. Most loan providers want to ensure that your business generates enough income for itself and to repay the loan.  
  • Business revenue reports— if you already have a business, you’ll have to show how the company is doing financially, such as showing cash flow. 
  • Collateral— only secured loans, like home equity loans, require collateral. If you’re borrowing an unsecured loan, you do not have to provide collateral. 
  • Home equity— as a business owner who owns their home, you can access the property’s equity in the form of cash to use towards your business. 
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Business loan lending options

Getting financial support for your business can come from crowdfunding or government resources, but most of the financing will be from a lender. In Canada, the two major sources of business financing are banks and alternative lenders.

Traditional financial institution

Banks are the traditional source of business loans; they are reliable and are willing to provide a significant amount of money. If you do choose to get a loan from the bank, remember that the application process can take a while. The bank will require several financial documents, and your approval relies heavily on them. You may also have to specify what exactly you’ll use the funds for rather than get a general business loan. 

An alternative lender 

Because traditional financial institutions have high standards and strict criteria, many aspiring business owners and entrepreneurs turn to alternative lenders for funding. One popular choice is Alpine Credits and their home equity loans, which are specific loans for homeowners who have substantial equity in their property. By subtracting your outstanding mortgage from the appraised value of your house, you can calculate how much equity you have.  

Home equity loans can be effective in your business’s financial planning because they can get as large as a regular business loan but with fewer requirements and a potentially lower interest rate. You don’t have to provide a business plan or show your credit score. Specifically, at Alpine Credits, you are eligible for a home equity loan if you have paid at least 25% of your mortgage.

home equity loan equation from Alpine Credits

Conclusion: Getting a home equity loan for your business 

Establishing your own business is an important event and a significant financial decision. Business plans already require a lot of time and energy, and getting the funding is an additional step that can take up even more resources. Contact Alpine Credits for a home equity loan to simplify the process to support your business endeavours 

Financial Solutions Specialists are reachable by phone or through a chat on the website; either choice is free of obligation. You’re approved for a home equity loan if you own your home.  

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Frequently Asked Questions

Small business loans can be from most banks, but one of the best places to get a small business loan is Alpine Credits. They acknowledge only your home equity and can quickly provide a significant amount of small business funding with comparably lower interest rates because your property would secure the loan.  

The start-up costs for a company are generally higher than what the average Canadian has saved up, which means starting a business usually means that you’ll have to borrow money.  

Your lender determines the exact amount you’ll need from either your personal income or your company’s income. In Alpine Credits’ case, you don’t need to meet a minimum income requirement if you’ve paid for at least 25% of your home equity.    

Not all lenders require a financial projection for your business to get a loan. For example, Alpine Credits doesn’t require that you show a financial projection. However, financial projections are part of the standard business planning procedure. It can help you set realistic goals for yourself.

A score of 660 is required for the best-case scenario. Some lenders may allow for a personal credit score of 500, but they may attach a higher interest rate.

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