How to Get Small Business Loans in Canada

Do you have a great idea for a small business, but lack the funds to get it off the ground? If so, a small business loan may be just the answer you need.

Finding the resources you need to get your small business going can help you join the ranks of a growing Canadian business movement. In Canada, there are roughly 1.17 employer businesses, 97.9% of which (1.14 million) are small businesses.

Today, we’re taking a look at how to take advantage of the small business loans Canada has to offer, so you can go from dreamer to doer in no time.

Ready to get started? Let’s dive in!

1. Prepare Your Business Plan

Maybe you’re seeking funding from a traditional source, such as a bank or credit union. Or, maybe you choose to go an alternative route such as a financing program. Either way, one element is universal. You’ll need a rock-solid business plan.

The logic behind this first step is simple. Lenders want to make sure they’re loaning money to a business that’s designed to succeed. Without a planned, operational strategy in place, the likelihood that your business will avoid major stumbling blocks is fairly low.

Before you dive into the small business loans Canada provides its entrepreneurs, make sure to define your mission and vision.

Your business plan should be clear-cut and filled with data on how you’ll get mission-critical teams, such as marketing and HR, up and running. Include data on your business strategy, risk management plan, employee retention measures and more.

You’ll also want to take into account any online portions of your business. Do you expect to run an e-commerce shop in addition to maintaining a brick-and-mortar presence? If so, your investors will want to know how you plan to set each element up — and turn a profit from them.

Need some guidelines to get started? The Canada Business Network provides some handy tips on how to write your business plan.

2. Gather Data On Your Financial Stability

You’ll also need to prepare past and current financial documentation. This can prove to your lender you’re prepared to take on the financial challenges of owning a new small business.

Ideally, you’ll be able to show evidence of a strong financial start for your business. So begin gathering receipts, pay stubs, invoice statements, and more. Almost all the small business loans Canada divvies out will need the recipient to be in healthy economic standing.

This step is essential to helping the lender understand your means for building the bottom line. In a nutshell, it demonstrates that giving money toward your start-up or small business is a solid, stable decision investment.

Regardless of how dynamic your company idea is, if it’s not profitable, it might send up too many red flags. If this is the case, the loan could be denied. In fact, risk-averse banks are one of the top 10 reasons small business loans are rejected.

But, if you can prove that your business is generating income, or that you’re ready to take on its financial challenges, you’ll peak their interest.

3. Research The Small Business Loans Canada Offers

Your business plan is prepared and your financial data is handy. You’re ready to take your first steps toward applying for your small business loan. You may be inclined to head straight to your nearest bank, file folders in hand.

This can be a great place to start. Banks and other traditional financial institutions such as credit unions are common places to turn. Receiving a loan through a bank is one of the most stable ways to get funded.

Yet, as we’ve mentioned before, it’s becoming difficult to secure funds this way. The small business loans Canada used to provide are not immune from this same fate.

As the global economy shifts and dips, investing in anything that’s not a sure-fire gain can make banks wary. Thus, it’s no wonder that small businesses, with their risky conditions and uncertain futures, are often turned away.

The good news is, banks aren’t the only providers of small business loans Canada has to offer.

You may also want to consider financing programs to provide the capital you need. One of the biggest in the region is the Canada Small Business Financing Program provided through the Government of Canada.

This loan helps small, for-profit businesses take off. The program can provide up to $1 million for eligible companies. If you make less than $10 million per year, you could qualify.

You can apply the money toward property, vehicles, renovations and more. To apply, schedule a visit to your local chartered bank, credit union, or caisse populaire. Here, you can discuss your options and eligibility.

A similar program is the Start-Up Financing Program. This is offered through the Business Development Bank of Canada.

One of the biggest differences between the two programs? The Start-Up Financing System isn’t offered through the federal government. As such, many of the usage restrictions of the Canada Small Business Financing Program do not apply.

For instance, you can apply funds from the Start-Up Financing Program toward working capital and franchise fees — both of which are prohibited by the Canada Small Business Financing Program.

4. Consider Community-Provided Support

Are you still having difficulty finding a match amid all the small business loans Canada provides? If so, consider taking a different route.

Bank loans and financing programs remain some of the most common means of securing start-up revenue. Yet, you may also find success through local non-profit support, or other government programs designed to help you succeed.

To start, research if there are any community loan funds in your area. These are non-profit organizations created to help small business owners find financial backing. While these tend to be on the smaller size, some can reach up to the $100,000s if the fit is right.

One local option is the Access Community Capital Fund. This provides microloans (up to $5,000) to new business owners.

To qualify, owners must be Ontario residents. They must be seeking to start a company in the Greater Toronto & Hamilton Area. Also, owners must be 18 years old or older. They must have a strong financial background and be in good standing with the Canada Revenue Agency. They must also be able to provide proof that they’ve tried other loan options to no avail.

Another option in this field is to look into Angel Investors. Put simply, an angel investor is someone, typically within your community, who chooses to personally invest in your business. Money is given not because your business is a sure-fire way to get rich quick, but because your dream and vision are meaningful and important to the investor.

An angel investor will make the decision to loan you money based on his or her connection to you, the business owner, and the belief that you will deliver on your promises. These investments are often made with the understanding that the business’s financial success is not guaranteed.

This puts angel investors in opposition to venture capitalists, who only invest in a small business opportunity if it’s poised to deliver a massive return. These small business loans opportunities don’t just help business owners to connect to the financial support they need, they also help business owners build a supportive and encouraging network of investors.

There are several ways to seek out support in this area. Some include online crowdfunding platforms and networks of angel investors. In both instances, people pool together resources to draw capital.

Are you interested in this opportunity? If so, Angel Investors Ontario is a great place to start.

5. Take Advantage of Owner-Specific Support

Another option is to take advantage of any government-facilitated small business loans that deliver financial support to specific types of new small business owners.

One example of this type of program is the Microlending for Women in Ontario program, delivered by the Ministry of the Status of Women.

After completing a few programs designed to help low-income women start their own businesses, you could apply for a microloan ($500 to $5,000) to take the next big step. To date, this program has supported more than 800 women on the path to business ownership.

Another program along these lines is the Aboriginal Business and Entrepreneurship Development program, which helps business owners of Canadian Aboriginal heritage turn their business ideas into reality. Qualified applicants could receive up to $99,999 in funding assistance, distributed via contributions that work like grants.

Lastly, there are also small business loans Canada provides that directly cater to young entrepreneurs.

If you’re between the ages of 18 and 35, you could qualify for financial support through programs such as these. In addition to funding, a majority also provide leadership training, helpful guidance and advice, and mentorship.

Not sure where to start? This helpful guide details eight places Ontario-based entrepreneurs can check to get the small business loans they need.