Business loan requirements: Will you get approved?

Small business loan requirements can include a range of important documents and financial details. Banks have a much more involved application process, while online lenders are more flexible because they ask for less information overall.

Business loan requirements

Below is a comprehensive list of small business loan requirements. Requirements depend on the lender, and you may not need to provide all of these.

1. Personal credit score

Lenders typically examine your personal credit report when you apply, including the personal credit scores of the co-owners or stakeholders of your business. Lenders often require a personal score of at least 650 from successful loan applicants. If you’re already in business, prepare to submit a credit report for your company as well. Overall, lenders want to see that you’re responsible with your debts, largely because it translates directly into how well your business will be able to repay a loan. If you have bad credit, there are bad credit business loans available, but they come with steeper interest rates.

2. Time in business

To qualify for most business loans with online lenders, you’ll need to be in business for at least six months to a year. Your typical bank could require you to be in business for at least two years. If you’re a startup or your business hasn’t begun operations, you may find it harder to get a loan. You can consider a start-up loan or apply for a loan through the Canada Small Business Financing Program (CSBFP).

3. Annual revenue

Lenders often require businesses to bring in annual revenues of $80,000 or higher before they will consider your application. Monthly, the minimum revenue is usually around $5,000 to $10,000.

4. Personal debt-to-credit ratio

It sounds counterintuitive, but some lenders will consider too much personal credit a risk – after all, you could turn to that credit if your business runs out of money. It’s worth paying down your existing personal debts before applying for a business loan to show lenders that you aren’t too deep in the red.

5. Business cash flow and income

Your business’s debt-to-income ratio is important to creditors too. To be sure that you can meet repayment requirements, some lenders look for a total income that’s at least 1.25 times greater than your total expenses. The higher your cash flow is to pay off your debts, the better. Banks like CIBC want to see that you have positive revenue for at least 12 to 24 months.

6. Potential collateral

If you’re applying for a secured business loan, you may need to identify an asset – equipment, inventory or real estate – to back the loan against default. If you prefer not to provide collateral, you’ll need to compare unsecured business loans. You may also be required to sign a personal guarantee that holds you accountable if your business is unable to pay its debts. It’s a legal commitment you or a guarantor makes to take personal responsibility if you default on your business loan. This might mean using your personal assets to repay the business loan.

7. How you intend to use your funds

You may need to specify exactly how you plan to use the money you borrow. Some lenders may limit how you spend the approved funds. For example, most equipment financing loans restrict you to only use the funds to purchase equipment.

8. Industry

The type of industry your business is categorized in is another key factor for many lenders. Industries like gambling, marijuana or adult entertainment may be seen as risky or a theme your lender doesn’t want to be affiliated with. Seasonal industries like golfing, camping or landscaping, may also scare lenders away from financing your business.

9. A detailed business plan with financial projections

Lenders want to see that you have valid industry experience. Expect to be questioned about the ins-and-outs of your business when you’re applying for a loan. Show up with a business plan prepared that outlines your business’s objectives, how you’ll use borrowed funds and what your projected cash flow will look like over the next few years. You can include market research about your industry to show your understanding of how your business will fit in.

Compare business loan requirements

Online lenders have more flexible small business loan requirements compared to traditional lenders like banks and credit unions. But there is a catch: Because they’re easier to get approved for, they also tend to have higher interest rates.

Below is a summary of small business loan requirements from different lenders in Canada.

Lender	Eligibility requirements	Key features
	- Operating for at least 6 months - Canadian based business - 550+ credit score - $10,000 in monthly sales	Borrow $5,000 – $800,000 Payment matches your business cycle (pay more when you’re busy, less when you’re not) Get funds in 24 hours.	Go to site Read review
	- Operating for at least 9 months - Operating Canadian Business Bank Account - Over $10,000 in monthly sales ($120,000/year)	Borrow $500 - $500,000 Broker with the largest lender network. Minimum credit score of 410. Get funds in as little as 48 Hours.	Go to site Read review
	- 6 months in business - Minimum $100,000 annual gross revenue - 600+ credit score	Borrow $5,000 - $300,000 Find out your loan offers fast without affecting your credit score. Get funds in as little as in as little as 24 hours.	Go to site Read review
	- Canadian business with 600+ credit score - In business for at least 6 months - Annual revenue of $120,000+ - Business bank account - Business operating in Canada	Borrow $10,000 - $300,000 Available 24/7. Apply within minutes. Fixed financing and flex financing are available. Get funds in as little as 48 hours. Daily, weekly or bi-monthly payments.	Read review
	- Have a Canadian bank account - Place of business located in a Canadian province/territory - In business for at least 100 days - Show a minimum of $4,166 in monthly deposits ($49,992/year) - No minimum required credit score	Borrow $1,000 - $300,000. Less focus on historical financials and more focus on overall business health and potential. Custom funding based on your cash flow. Get funds in 48-72 hours.	Read review
	24 months minimum time in business $10,000 /month minimum revenue	Borrow $1,000 - $5,000,000. Business loan broker partnered with banks and alternative lenders. Get your loan offers for free.	Read review
	- Industry experience - Personal financial investments in your company - Positive revenue for at least 12 to 24 months - Good credit score - Detailed business plan	Borrow from $10,000. Choose between a fixed and variable interest rate. Choose between a secured or unsecured business loan.	Read review

Comprehensive guide to business loans

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What information do I need to provide?

Many larger financial institutions, like banks, will require you to make an appointment to complete an application in person. However, newer online lenders automate the process with the convenience of a completely online application.

To initially complete your application, you’ll typically submit:

• Your full name, contact information and SIN number.
• Your full business name, address, phone number and email address.
• Your industry and the date you started your business.
• The annual revenue of your business.
• Your personal bank account information and income earned.
• How much you’re looking for in funding.
• How you intend to use your loan.

What documents will I need to provide after I apply?

After applying for a business loan, a representative will likely call you to go over your application. To confirm the information you’ve provided in your initial application, you’re often required to upload further documentation of your business’s financial details.

Whether you’re applying for a business loan via an online lender or a traditional lender like a bank, here’s what you may need to provide (although it will depend on the lender):

• Bank statements. Lenders typically ask to see two years of your business’s bank statements to verify your financial status.
• Revenue statements. Also called profit-and-loss statements, lenders often require a recent year-to-date revenue statement accompanied by statements from the past two years.
• Balance sheets. A good indication of your business’s financial standing, these statements list your assets, capital and any liabilities.
• Business and personal tax returns. The younger your business, the more likely a lender will require your personal tax returns as part of your application.
• Your personal financial details. Lenders may want to see your full personal assets and liabilities, including your home, credit cards, loans, cars and other investments, as well as debts like credit card balances and any loans.
• Personal credit score. While most lenders will use your SIN number to access your personal credit reports, you may need to prepare to submit copies of your credit reports from the two main reporting agencies: Equifax and TransUnion. A personal score of 649 or lower could jeopardize your application.
• Insurance or collateral. To lower its risk, a bank may require you to put up an asset or take out insurance to pay off the loan should something happen.
• Business plan. Presenting a solid business plan can showcase your company and team, increase your overall credibility and show a lender that you’re serious about the success and future of your business.

If your lender provides the option to upload information online, you can protect the integrity of your documentation by submitting it as a PDF. You may also be required to fax copies of important documents or scanned ID’s before a lender will approve your application.

How to qualify for a business loan: A step-by-step guide

Step 1: Pinpoint why your business needs a loan

Knowing exactly why your business needs financing is key to deciding what type of loan you need, which lender to go with and how much it’s going to cost you.

Step 2: Calculate how much you need

Do the math and add up your expenses. This will help you narrow down lenders: Most have minimum and maximum borrowing amounts. It’s generally not a good idea to borrow more than your business needs because you’ll end up paying more in interest.

Step 3: Review your credit reports

Before you apply, check your personal and business credit reports for errors. If you notice anything wrong, contact the financial institution and the credit bureaus to have it changed. Doing this before you apply can not only up your chances of being accepted, but it can also help you qualify for more favourable rates and terms.

Step 4: Find a loan you and your business are eligible for

Pay just as much attention to lender’s eligibility requirements as rates and fees. While some lenders are flexible with eligibility, you’re more likely to be approved if you are solidly over or under any cutoffs. Rule out any loans that you don’t think you’ll qualify for. If you’re not sure whether you’re eligible or not, contact customer service — most are happy to discuss eligibility requirements when it comes to specific situations.

Step 5: Get your documents in order

Before you even apply, gather together any documents your lender requests. It doesn’t hurt to anticipate any further requests by having extra documentation on hand. If you’re applying online, scan your essential documents beforehand to make the application process as quick and easy as possible.

Step 6: Complete your application

Follow your lender’s application instructions and reach out to customer service if you have any questions. Many lenders have a live chat option on their websites and almost all have a customer service line you can call. Before you submit your application, review it a few times to make sure all the information is accurate. One of the top reasons lenders reject applications is because it contained incorrect information.

Step 7: Provide collateral (optional)

While you don’t need collateral to get approved for a business loan, securing your business loan with assets like equipment or real estate can increase your chances of approval and even score you a lower interest rate. You’ll have to apply with a lender that offers secured business loans of course.

Full checklist for small business loan requirements

Common business loan application mistakes

• Making major changes to your business. Now is not the time to take risks: Lenders want to see that you’re stable.
• Forgetting to submit your business plan. This is not only one of the key business loan requirements, it’s also where you get to make a case for yourself and show how serious and dedicated you are.
• Not paying attention to your credit score. Your credit score is sometimes the only financial information underwriters check. Don’t apply for something you’ll automatically be disqualified from.
• Lying on your application. While not all lenders cross check your financial history with your application, many do. Eligibility requirements are there in part to protect you from getting yourself into a financial situation you can’t afford – and lying won’t help you get out of debt.
• Missing deadlines. It doesn’t look good for you – especially when you’re trying to convince a lender you can make payments on time – if you can’t even get them documents when they ask for them.

Bottom line

Depending on the size of your business and desired loan, you may qualify for more than one type of financing from a variety of lenders. Keep in mind that traditional banks often have stricter business loan requirements and application processes. You could find that online lenders are a better option for your financial needs, especially since they usually offer comparable – or better – interest rates and fees, less strict eligibility criteria and an easier application process.

Before applying for a loan, explore your business financing options and the business loan requirements of various lenders to find a business loan that best fits your situation and helps you remain profitable and successful in the years to come.

Frequently asked questions

• What type of loans are typically offered to small businesses?

  The types of loans offered will depend largely on the lender and what your business is eligible to receive. You’ll find lenders that offer loans for as low as $1,000 and some for as much as $1.25 million or more. You’ll also find secured loans, unsecured loans, lines of credit, merchant cash advances and much more.

• Will I need to provide collateral when applying for my business loan?

  If you’re applying for a secured business loan, you’ll need to provide collateral. Collateral requirements for your loan will depend on the lender, the financing amount and the type of loan you apply for.

• Can I apply for more than one business loan at a time?

  Yes — but be careful. Many lenders offer convenient online applications but may pull your credit report when assessing the information you submit. If you apply for multiple loans and a lender sees other recent pulls on your credit history, it could interpret this activity as a sign of desperation on your part. This could affect how that lender perceives your creditworthiness and potential for risk. You could then be rejected and your credit score will take a temporary dip.

• How much can I get approved for a business loan?

  You can get approved for business loans that are as small as $5,000 right up to $500,000 and even $1 million. Online lenders, for example, typically cap their business loans at $500,000 while you can apply for a Canada Small Business Financing Program loan of up to $1 million. The loan amount you can secure for your business will depend on a number of factors, including your personal credit score, company income and assets, and whether you’re securing your loan or not.

• Where can I get a small business loan?

  If you’re starting a business venture or you want to take your business to the next level, you’ll need financing to help you out. Here’s a look at some of the most common lenders you can rely on to provide you with a business loan.

  • Banks. Banks are the most traditional route to turn to for a small business loan but you’ll need to have good to excellent credit. Banks typically offer the best interest rates and higher loan amounts, but tend to require extra documentation and the application process is more involved. It can also take longer to get your hands on your funds. You may have to secure your loan with business assets, like land or equipment, or personal assets, such as your home or your car.
  • Credit unions. Credit union business loans often cap out at $50,000 and they often have competitive rates and adjustable financing conditions since they’re non-profit financial institutions. However, you will need to be a member of the credit union in order to apply for a loan – or any other product for that matter. Applying for membership and waiting on funding could take weeks, so this isn’t your best option if you’re looking for a quick way to secure a business loan.
  • Online lenders. Online lenders are typically faster to fund loans than banks and credit unions. You usually don’t need to submit as many documents, you can fill out the loan application in just minutes, and you can usually expect to receive your loan funds within 24 to 72 hours. This group tends to be your best bet if your credit score isn’t the greatest because they place less weight on your credit score and more on the overall health of your business.

Written by

Carmen Chai

Writer

Carmen Chai is a freelance writer at Finder, specializing in financial products. She is an award-winning Canadian journalist who has lived and reported from major cities such as Vancouver, Toronto, London and Paris. She has reported on personal finance, mortgages, and banking products for nearly a decade. See full bio

Co-written by

Leanne Escobal

Publisher

Leanne Escobal is a publisher for Finder. She has spent over 11 years working with financial products and services, specializing in content and marketing. Leanne has completed the Canadian securities course (CSC®) as well as the personal lending and mortgages course by the Canadian Securities Institute. She has a Bachelor of Arts (Honours) in English literature and creative writing from Western University. See full bio