Business Finance: A Guide to Getting a Small Business Loan


Guide on Getting a Small Business Loan

August 25, 2016 | Omid Jalili 2 Comments

Guide on Getting a Small Business Loan


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Small business loans can be challenging, especially for start-ups. One of the most popular forms of assistance continues to be, the Canada Small Business Financing Program (CSBF). The main purpose of the program is to increase the availability of financing for establishing or expanding small businesses. Application is made through the Canadian Chartered Banks, in much the same way one would apply for any business loan. Canada Small Business Financing loan can be used to finance up to 90% of the cost of eligible assets you are purchasing. This low equity requirement is one of the major benefits of the program. With conventional loans, lenders usually require a higher percentage of the down payment.



Canada Small Business Financing is worthwhile option for your business if you are:
• Purchasing or expanding a Business or Franchise, including Equipment, Building, Leaseholds and Property;
• Improving Existing Leaseholds
• Purchasing Equipment; Eligible purchases made within the past six months can be finance

Canada Small Business Financing Program




• The business must be a start-up or currently operating in Canada, with estimated annual gross revenue of less than $5 million a year.
• Sole proprietors, partnerships and incorporated companies qualify, however farming and charitable or religious organizations are not eligible.
• Business assets/purchases that qualify for financing include Equipment (new or used), Signage, Furniture & Fixtures, new Leasehold improvements, Real Property and Vehicles.


The program can provide a Canadian Business with up to $500,000 in financing for purchase of land or business unit ($350,000 for equipment and/or leasehold improvements).


Financing can be arranged for a maximum of up to 10 years. The maximum allowable payback period for a small business loan is typically the life expectancy of your asset, up to a maximum of 10 years.

For example, if you use the Canada Small Business Loan to purchase equipment that is expected to last five years, you will have five years to repay the loan. On the other hand, if you use the financing to purchase a new unit or building for your business your amortization will be over a 10 year period. However the maximum allowable under the program for Equipment loans is up to a 10 year amortization. Leasehold improvements is up to 7 years amortization. Real Property Loans have a maximum 10 years amortization.


The loan interest rate is usually 3% above the lender’s prime rate.


At time of registration and loan access, all applicants must pay a one time 2% registration fee. These fees, payable to the federal government are intended to help cover the costs of administering the CSBF Program. CSBF does Not finance Working capital, Franchise fees, Appraisal and legal costs; Goodwill or Inventory.


Even though this program is often referred to as the “government guaranteed loans program,” the business owner is still expected to provide their limited personal guarantee in support of business borrowings. However, the maximum amount of their guarantee is at 25% of the financing amount (aggregate of 25% in the case of a partnership). The bank still applies the same degree of due diligence and approval process regardless of the fact that it’s a government guaranteed loan. They will look at many factors from your personal credit and assets to the historical and future profitability of your business, so the key to getting a small business loan is preparation. Your chances of getting a small business loan will be greatly improved if you have all your documents in order.

Some important factors in improving your chances of obtaining a business loan are set up below.





The single most important issue in obtaining CSBF is your credit score because it illustrates the way in which you handle your other obligations. The bank will take into consideration your personal credit history and if your report has any derogatory reporting such as late payments, over-utilization of credit delinquencies or judgments, it would negatively affect your chances of getting the loan. Your bank will eventually run its own credit report. You will be more successful in the application process, if you work on improving your credit score ahead of time. One way of doing that is to check your credit file from Equifax at For a business loan a strong personal credit is key. Even small efforts, like paying down some of your credit card debts to reduce your overall credit utilization, can make a difference. Minimum required score is 650.


You will need to present a complete loan package including a personal financial statement, copies of personal tax returns for three years, and verification of the source of your down payment. List all your assets (the things you own), on one side of a piece of paper. These will include your home and any other property; investments such as shares; cash in the bank; what your business is worth; cars and trucks; and personal effects such as jewelry, furniture and other belongings (use the insured value if you’re not sure what they’re worth). List all your liabilities (what you owe), on the other side of the same paper. These will include your mortgage(s); car and truck loans; any personal loans and credit card debts.


Be up to date on documents. Lenders really like applicants who have all their paperwork up to date including your financial statements and income tax returns for the last 3 financial years. Ensure you are up to date on all your taxes, and you can show your last 6 months bank statements for personal and business accounts. Be prepared to evidence your loan application with a quote, invoice or contract for equipment and leaseholds. If you are purchasing an existing business ensure the purchase and sale agreement includes a schedule with the list of equipment.


Provide information about company management. When banks lend money, they like to understand who runs the company and to be familiar with their backgrounds. This is a key factor in presenting your loan for approval. Help your lender by providing resumes for each owner or key employees and describe their functions and responsibilities. If certain key positions have not yet been filled, include a thorough job description of the type of person you are seeking. This will confirm for the lender that you have analyzed your needs and have determined the requirements of the position(s).



Small business loan funding typically takes so long or is rather challenging to obtain for startups, there are other options for most small business owners to turn to such as:


A home equity loan uses the equity in your home as collateral to secure a loan. Because this is generally a low risk loan, typically you will experience a quicker turnaround time than Small business loans. Home Equity loans generally offer interest rates at prime rate whereas the rates for a small business loan is prime plus 3%. Home Equity loans are also flexible as you borrow and repay as needed. However the risk is that you are tying your personal home to your new business. Hence if the business fails, or you fail to maintain the terms and conditions of the home equity loan or line, you risk loosing your home.


If you have a friend or relative who is willing to lend you some funds, you have another potential way to finance your business. Borrowing from friends and family presents an interesting alternative to traditional forms of financing, and can have some unique advantages, including low or no interest payments and avoiding the hassles of bank contracts.


If a bank loan isn’t an option for your business, factoring can help. Some businesses use factoring to get started. Factoring is the purchase of a business’s accounts receivables. The factor advances most of the invoice amount usually 70% to 90% after checking out the credit-worthiness of the billed customer. When the bill is paid, the factor remits the balance, minus a transaction fee. Whereas banks focus on a business’s credit-worthiness in considering whether to make a loan, factors look at the financial soundness of a business’s customers. As a result, firms with scant credit history may be able to sell their invoices. Another advantage of factoring is that the factor company that purchases your receivables takes title to the invoices and collects them when they are due. That company also assumes responsibility for the costs, as well as the hard work and hassle that comes with customer debt collection.


Business credit cards are among the most readily available ways to finance a startup, and can be a quick way to get your business up and running. If you are a new business who is just starting out and you don’t have a lot of money coming in, you can put it on a credit card and pay the minimum payment. However, there are some serious disadvantages. If the new business has trouble making money and hence making the minimum payments, the interest rates and costs on the cards can build very quickly and your credit can get tarnished, jeopardizing you chance of obtaining financing in the future.


Selling your products before they launch is an often-overlooked and highly effective way to raise the money needed for financing your business. The money you raise will help you pay for inventory in advance of selling.


Those looking to finance their business can always look to an angel investor. This alternative form of investing generally occurs in a company’s early stages of growth, with investors expecting a 20% to 25% return on their investment.

The main advantage of an angel investor is that you are likely to get an investor who brings with them entrepreneurial experience, so they can contribute effectively in making the business a success.◊


Download FREE the Guide on Getting a Small Business Loan:


PDF download




Omid Jalili - OMJ Mortgage Capital

Omid Jalili
Doctor Finance
President, Broker


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Categories: Business Finance, Buy a Business, Entrepreneurship, Small Business, Small Business Loans, Start a Business,

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