Steps for Getting a Small Business Loan
Small businesses account for 98% of all businesses in Canada, but only half of small businesses make it more than five years. There is a lot to consider when starting your own business and applying for a loan is just one item on the checklist, and an essential one at that. This additional funding could be the boost needed to get your business on the right track to thrive well beyond the five-year mark.
If you are an entrepreneur looking for a loan to start or grow your business, we’re sharing a few helpful steps for getting a small business loan in Canada:
- Find a Lender that Fits Your Business Needs
Getting the stamp of approval for a business loan is exciting, but finding a business loan that suits your business needs and goals is like shopping for a new home. You’ll want to do your research and look for a loan and financial institution that meets your criteria. From the lowest rates and industry expertise to personalized service, its important to compare all the loan options available and find one that aligns well with your needs.
Are you currently reviewing the details of a potential business loan? Well, if the terms of the loan have you feeling uncertain about being able to afford the scheduled payments, don’t be afraid to speak up! Ask if a grace period or reduced monthly payments can be accommodated to help you feel more comfortable about signing on the dotted line.
When exploring the different lenders available, keep credit unions in mind. Credit unions are among the largest lenders to small and medium-sized businesses in Canada. Not only that, but their customer service and satisfaction are highly ranked. A recent study conducted by the Canadian Federation of Independent Business (CFIB) surveyed over 11,000 small businesses across the country on their satisfaction with their financial institution within the areas of financing, fees, account manager, and service. Credit unions not only achieved the highest overall score and ranking, but also the highest scores in each area of evaluation.
Ultimately, doing your due diligence up-front will not only give you the confidence that you’ve chosen to work with the right lender, it will also benefit you and your business in the long run. Now that’s a win-win!
- Your Credit Score and History Matters
Do you know your credit score? Have you been paying your bills on time? When applying for a loan of any type, your credit score and credit history are analyzed and may make or break your chances of getting approved. The reason behind this is simple. Your credit score paints a financial picture of how well you manage your money, which helps lenders determine your creditworthiness and ability to repay outstanding debts on time.
This three-digit numeric score indicates your financial history, wellness, and responsibility to prospective lenders. They use your credit score to evaluate your credit risk before determining how much money to lend you – and what interest rate to charge.
This score is a measure of trust: the higher your score, the more trust lenders will have in your ability to repay a loan. In Canada, credit scores range between 300 – 900, and your score can help determine the type of loans you are eligible for and the properties you can rent. Simply put, these three little numbers hold significant weight and could mean the difference between approval for that business loan you have your eye on. Learn more about your credit history and why it matters here.
- Present a Solid Business Plan
As a business owner, you value and believe in your product or service more than anyone. But when applying for a loan, you must prove your business’ significance and credibility to your prospective lender – this is where a solid business plan comes into play. A detailed business plan is key component on your path to securing a business loan. It should include elements such as an overview of your business’ history, the business structure, the size of your company, your marketing strategy, and a detailed description of your products and/or services.
A credible business plan will also include a projected view of your business’ short and long-term goals and your business forecasts and financials. Ultimately, a business plan is a crucial part of starting and growing your business and is a must when seeking external funding to get your business off the ground. As the age-old saying goes, failing to plan is planning to fail!
- Gather Additional Financial Documents
Along with having a solid business plan, having supplementary financial documents prepared is another key element when pitching your small business in front of a potential lender. Documentation displaying concrete financials help to illustrate that you’ve gotten everything under control and have kept a record of everything pertaining to your small business – such as profits, assets, losses, expenses, and other important figures. These documents are known as year-end financial statements and include your Balance Sheet, Income Statement and Expense Report, and a Year-to-Date Statement for existing businesses.
In addition to your business financial statements, it’s best practice to follow up with a Personal Net Worth Statement, which indicates your personal assets, along with your most recent tax return, recent bank statements, and proof of your business registration.
Remember, when applying for your small business loan less, is not more, and you will want to ensure you provide as much information about you and your small business as possible. By doing this, you’ll be one step closer to securing the funding to get your business off the ground or help expand it!
Build the business of your dreams with the help of a credit union
Are you a small business owner ready to take that next step in growing your business? Consider a credit union for all your small business financial needs. Find your nearest credit union, here to get the conversation started.