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How to Get a Business Loan at a Canadian Bank

Starting a business or gaining capital for an existing company in Canada often requires taking out a business loan. Depending on the size of the company and the necessary funding for the project, the specific type of business loan will vary. Regardless of the appropriate type of funding for the appropriate amount of funding, businesses can gain funds from a Canadian bank.

Organize the Funding Requirements:

Before seeking funds from any Canadian bank, business owners need to organize the information related to expected expenses. The funding requirements are variable based on several factors. For example, a start-up company will need the funds to rent space, purchase equipment, set up the company and pay employees until profits provide enough to manage the expenses.

Making a list of the required expenses for the particular project will help determine the estimated funding needs. In some cases, business owners will need to obtain an estimate from another company for parts, equipment or other items before adding it to the estimated figures.

Add the figures and get an approximate funding requirement. After finding the estimated cost, business owners should add around 10 to 15 percent of the figure for extra cushion in case a few expenses cost more than expected.

Gather Appropriate Paperwork:

The appropriate paperwork for a company is variable based on the type of business and the necessary laws related to the company. Regardless of the specifics, Canadian banks will need to see a few key items to provide funding for a company.

A business owner should provide any relevant paperwork related to tax identification. Any established business will already have identification available. Start-up companies should set up the business for taxes before seeking funding for proper identification and a credit check.

Beyond tax paperwork, the business will need to provide any existing financial information. A start-up company will have limited information available, but any established business should have enough financial data for at least three months to one year, depending on the specific request of the bank.

A Canadian bank will ask for a business plan before offering funds. Every company needs a business plan to explain the purpose of the company, the individuals involved at the upper level, the financial expectations for the next five to ten years and any other relevant data relating to the business. Specifics will differ between companies and the amount of time since it was established.

The bank officials will ask for the paperwork and will run a credit check on the company. If the business is not yet established or has limited credit history available, then the bank will also run a credit check on the company owner.

Discuss Loan Options:

Canadian banks offer different types of loans based on the needs of a company. A business loan is a general funding option, but it might not always be the best source of funding for company needs. In some situations, the bank might suggest a specialized business loan for the particular company or a line of credit instead of a traditional loan if the company needs a small amount of funding.

Selecting an appropriate loan is as important to qualifying for funds as the paperwork and credit history. A bank might be willing to open a line of credit, but might not be able to provide a basic small business loan in every situation. Taking time to discuss the loan options the bank offers for businesses will make the selection of a funding solution a little easier.

Compare Lenders:

Canada has several banks available for business loans, but not every bank is ideal for the company needs. Business owners should ask about average interest rates on business loans, the length of the term and the closing costs involved in taking out the funds.

Taking time to look at several banks, such as the Royal Bank of Canada or the Bank of Montreal, will provide the best loan for the particular company. While qualification standards and company expenses for the funds are often similar, a small variation can add a high additional charge over the course of the loan.

Apply for Funds:

The application process is variable based on the specific requirements of the bank. Every bank will need to see appropriate paperwork related to the establishment of the company, current financial information, the business plan and details about the funding requirements. The application paperwork will also ask for details about the assets a company owns.

In the case of a start-up company, Canadian banks might ask for collateral from the business owner. Collateral can range from a personal residence to any other property the company owner has purchased. While the bank might ask for collateral, the amount of funding requested will play a role in the necessity.

Submit the application according to the bank’s regulations. In most cases, it is handed to an appropriate official with any other requested paperwork on the company finances and identification.

Wait for a Response:

Business owners will end up waiting for a response from the bank. Canadian banks are efficient, but a business loan can take a few days before it is approved or disapproved. In most cases, denial of funds relates to the limited information available, a poor credit rating or an inability for the company to pay the loan within the length of the term.

If the bank requests more information or paperwork before approving the loan, then the business owner will need to provide the requested data. Depending on the situation and the bank, missing information will usually result in a denial. The request for more information typically occurs if the lender is considering the loan, but needs a little more information to make a final decision.

Go Through Closing:

Closing is the final step of obtaining a business loan in Canadian banks. Closing refers to the process of reading through the terms and conditions in the contract and then signing the paperwork to obtain funds.

Closing costs will vary based on factors like the size of the loan, the percentage the lender requires and whether business owners used a third party broker to find an appropriate loan. Most closing costs are a percentage of the loan, so a smaller business loan will have reasonable costs while a large loan will have a high initial expense.

Getting a business loan at a Canadian bank is not difficult, but it does require the appropriate research into the bank and proper paperwork. With the paperwork in order and the right type of loan application, business owners can obtain funds to work on the growth of the company.