1. Who is eligible for a small business loan?
Small business loans are relatively easy to obtain compared to financing for corporates. To apply and receive funding, business owners need simply to complete an application (online or at specialist lenders) and provide access to their business’s registration details and financial statements, as well as credit profile. While size is not a direct consideration, lenders will want to look at a consistent history of revenue generation and reasonable cost control.
2. Is a personal credit score and business credit profile the same thing?
No, the personal credit score in Canadian provinces and territories is a number between 300 and 900. While there is no equivalent score for a business in Canada, different credit bureaus have adapted a scoring system to rank creditworthiness by evaluating certain behaviours of businesses.
3. Is a business plan necessary?
This depends on the type of loan being obtained. While most small business lending companies will want to see how the small business will deploy the funds, a well-formulated business plan may not be an application support requirement for all. In the case that it is necessary though, it is important to answer the following questions:
a) What the small business loan will be used for (additional funding “cushions”, expansion, equipment/technology purchases, working capital, funds for supplier/employee payments, capital expenditures, cash flow purposes etc.)
b) Expected business and economic conditions over the next 2-5 years
c) How they will impact profitability and financial strength
4. How to select the best lender?
When looking at different lenders for small business financing, it is important to consider a broad list of items before committing to one lending option. While it is tempting to take the offer with the best rate, a lender should be viewed through the lens of a business partner. In the same way that a great business partner can improve the company, a great lender can provide your business with the resources to take it to the next level. As such, the following should be considered, weighed, and decided upon:
a) Their policy frameworks (application processes, information requirements, and ALL fees)
b) Ancillary services they offer (e.g. transaction banking solutions)
c) Term of the loan (measured in years or months)
d) Variable or fixed rates (possibly adjusted to real rates to account for inflation)
e) Funding amount offered and how it matches with the capital that is needed.
5. Can a business based out of a home qualify for such a loan?
Absolutely. If the business is registered and meets the other qualifications of the lender, the business can be located out of a residential living arrangement.