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How to get startup business loans
Got an awesome product or service that's worthy of funding? Take it to the next level with startup business loans in Canada.
Finding startup business loans doesn’t have to be challenging. In fact, there are a variety of funding options you can pursue to get the money you need to grow your new business. From government-backed startup loans to private loans, compare your startup business loan options below to find the best fit for your new business.
1. Startup business loans from banks and credit unions
You can apply for startup business loans through banks and credit unions. The Canada Small Business Financing Program (CSBFP) loan is a business loan partially backed by the Canadian government. You can borrow up to $1 million for startup funding, and you can apply for it through a participating bank or credit union. Most Canadian startups and small businesses with revenue of $10 million or less are eligible to apply. Farming businesses are not eligible.
You can use the CSBFP loan for many purposes, including buying a commercial vehicle, buying or improving equipment, buying land or buildings for business or taking out a lease. Fees associated with this loan include the registration fee, interest rate and lender fees.
Some examples of banks and credit unions in Canada that offer CSBFP loans include RBC, Scotiabank, BMO, TD, Meridian and ATB.
2. Business startup loans from alternative lenders
The CSBFP loan has strict eligibility requirements and an intensive application process. If you’re looking for startup business loans in Canada with more flexible requirements and faster funding, you can apply to alternative lenders. Alternative lenders vary in their requirements, but generally, you need to be in business for at least 3 to 6 months and have at least $10,000 monthly revenue.
Startup business loans you can apply for
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Who is most likely to be researching startup loans?
Finder data suggests that men aged 25-34 are most likely to be researching this topic.
| Response | Male (%) | Female (%) |
|---|---|---|
| 65+ | 2.79% | 0.96% |
| 55-64 | 4.80% | 3.75% |
| 45-54 | 10.57% | 5.96% |
| 35-44 | 14.22% | 10.76% |
| 25-34 | 16.81% | 11.91% |
| 18-24 | 9.80% | 7.68% |
Source: Finder sample of 1,041 visitors using demographics data from Google Analytics
3. Personal loans for startup funding
If your startup can’t qualify for a business loan, which may be the case when your business is very new and is not yet generating enough revenue, you can get a personal loan from a bank, credit union or alternative lender. Personal loans don’t rely on your business information to determine your eligibility. Instead, they let you borrow against your personal credit score or assets – and the money you’re approved for can be spent on pretty much anything you want, including your business. You can get a secured personal loan, which involves collateral like your home, or an unsecured personal loan, which doesn’t involve any collateral.
Banks and credit unions have stricter income requirements, so if you don’t qualify, you can apply for startup funding with alternative lenders.
Compare personal loans for business use
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4. Startup grants in Canada
You may be able to apply for business startup grants from the Canadian government and other organizations if you operate a specific type of business. For example, you could qualify for a business grant if you’re a new farmer, operate an export business or want to market an innovative product or service. You can also get grant funding if you’re looking to train and develop your workforce.
A perk of getting a grant for startup funding as opposed to a business startup loan is that you typically won’t have to repay a grant, which saves you a lot of money in the long run.
Examples of startup grants
- FedDev Ontario. FedDev Ontario provides startup funding to support the economic growth of southern Ontario. It offers loans for small to medium businesses as well as not-for-profit and community development organizations.
- Innovation Growth Program. In Manitoba, your small business could get up to $100,000 towards the development of a new innovative product.
- Boost Your Business Technology. Small business owners across Canada can get up to $15,000 to adopt new technologies for their business.
5. Startup business loans from Business Development Bank of Canada (BDC)
The BDC is a Crown corporation, and its sole shareholder is the Government of Canada. If your startup has been operating for 12 to 24 months, you can get startup funding of up to $250,000 from BDC with loan terms of up to 12 months. With BDC business loans, you can postpone principal payments so you can focus on growing your business.
If your startup has been operating for less than 12 months, you can apply for a startup funding loan from one of BDC’s partners. Learn more in the non-profit section below.
6. Startup business loans from non-profits
There are non-profits in Canada that provide startup funding and/or non-financial support.
| Organization | Description | Loan amount | Loan term | Interest rate |
|---|---|---|---|---|
| Futurpreneur Canada (BDC partner) |
| Up to $60,000 | 5 years (interest-only payments in the first year) |
|
| Community Futures (BDC partner) |
| Varies | Varies | Varies |
| PME MTL (BDC partner) |
| Around $5,000 to $50,000 | Varies | Varies |
| Rise |
| Up to $10,000 | Not disclosed | Not disclosed, but they describe it as “low interest” |
| Startup Canada |
| N/A | N/A | N/A |
7. Business startup loans from a group of individuals
If you’re looking for startup funding from less traditional lenders, you can consider these methods:
- Peer-to-peer lenders. P2P business loans are funded by a group of individuals and/or corporations through an online platform. They tend to come with higher interest rates but can be a good option if you’re struggling to get approved by the bank.
- Equity investments. One of the more common startup funding options is to take on investors in exchange for equity or partial ownership of the company. Small businesses can get an equity investment through a venture capital firm or an angel investor. While you won’t have to pay back any of the money you receive from an investor, you will have to share profits and decision-making power with them as your company grows.
- Friends and families. You can ask family and friends for contributions if they have enough liquid capital to finance you. Just be aware that borrowing from friends and family can create tension in your relationships, so it’s important to have a solid repayment plan in place to hold yourself accountable and keep them in the loop.
- Crowdfunding. Entrepreneurs that have an easily-pitchable idea may want to pursue equity or rewards-based crowdfunding. With equity crowdfunding, your company solicits online investments from multiple investors in exchange for partial ownership of your company. With rewards-based crowdfunding, your business gives prizes in exchange for donations.
8. Business credit card
A business credit card can be a great startup funding option for smaller expenses and to help manage your company’s spending. Some business credit cards come with low annual fees and competitive interest rates and are startup-friendly, making these a viable option for your business if you’re just starting out.
9. Business incubators
Business incubators are a startup funding option designed to help businesses get off the ground. Offering up a variety of services including free office space, training programs and more, you could potentially take advantage of the many services offered in order to save money in some areas of your business. Not only can you save on office space and training costs, you could potentially benefit from speeding up your business’s growth and success.
Examples of business incubators
- Research Innovation Commercialization (RIC) Centre. Located in Brampton, Ontario, RIC Centre is a not-for-profit innovation hub that provides mentorship, funding, connections and incubator space for entrepreneurs, no matter which stage the startup is in. The services they provide depend on which stage your company is in and your goals.
- MaRS. Located in Toronto, Ontario, MaRS offers support to Canada’s most promising startups. MaRS can provide startups with expert advice, access to investors and access to partners. It accepts startups in the early stages.
- Launch Academy. Located in Vancouver, BC, Launch Academy specializes in helping international tech entrepreneurs launch or expand their business globally. It works with startups that already have a product in the market and are somewhat established financially. Its focuses include SaaS, fintech, eCommerce, data science, eSports and more.
- Innovate Calgary. Located in Calgary, Alberta, Innovate Calgary is University of Calgary’s business incubator. It provides services to researchers, entrepreneurs and businesses in the advanced technology sector.
- Volta. Located in the heart of Halifax, Nova Scotia, Volta is a community of innovators. Members of Volta’s residency initiative can access more than $50,000 in programs, support and mentorship.
Types of startup business loans in Canada
Unsecured business loans
An unsecured business loan is a type of startup funding that doesn’t require any collateral. Unsecured loans are issued based on how good your credit score is. You’ll usually need a personal score of at least 650 to qualify for these types of startup business loans.
Secured business loans
A secured business loan is a loan backed by collateral, whether it’s a business or personal asset. This startup funding option can be easier to come by as a startup than unsecured loans, since you lower the lender’s risk by using an asset such as your home or equipment to secure your payments. The downside is that your lender can seize this asset to repay your loan if you run into financial trouble.
Merchant cash advances
A merchant cash advance is money you receive in advance from the lender in exchange for a percentage of your daily credit card and debit sales in the future. Merchant cash advance loans can be a suitable option for startups since they get repaid based on a percentage of your sales, which means that you’ll repay more in months where you net a higher revenue and less in months where your business is less busy.
Lines of credit
Revolving lines of credit give you more startup funding flexibility in terms of how you can access money. You can dip into these “loans” whenever you need cash and pay them back whenever you have a surplus of revenue. The best part is you’ll only pay interest on the amount you withdraw. Minimum time in business is around 6 to 12 months.
How do business startup loans work in Canada?
Startup business loans work just like personal loans, except they’re usually for larger amounts and you can only use them to cover your business expenses. Depending on the lender you go with, startup funding loans can come with fixed rates that stay the same throughout the loan term or variable interest rates that fluctuate with the markets. To get a competitive interest rate, you’ll need a good to excellent credit score, a strong business plan and your business needs to be generating revenue.
You’ll usually repay your startup business loan in installments. You can use your startup funding to pay for any business expenses you may have as you establish and expand your business.
Fixed rate vs. variable rate startup business loans in Canada
- Fixed rate loans. Fixed rate business startup loans are probably the most popular type of loan since you pay them back in regular installments over a fixed period of time. This lets you budget ahead and predict your monthly payments with no surprises.
- Variable rate loans. Variable rate loans go up and down in accordance with the Bank of Canada’s prime rate. This means your monthly payments can fluctuate from month to month – but you could save money if national interest rates go down.
Do I qualify for startup business loans?
Your ability to qualify for financing will depend on your personal situation and business profile. Factors that your lender may assess include the following:
- Personal credit score. Your personal credit score will have a huge influence on whether you can get the money you need for your business startup funding. You’ll usually have to have a score of at least 650 to qualify for startup financing for your small business. Find out your credit score.
- Professional experience. Your work experience can factor into whether you get approved or denied for a startup business loan. For example, you’ll be much more likely to get financing to start a woodworking business if you’re a red seal carpenter than you will if you have zero experience in the field.
- Project viability. You’ll usually need to submit a detailed business plan, which will help lenders decide if your endeavour will be successful. This may include information such as how much you plan to make each month, where you’ll source your customers and what type of equipment you’ll need to get up and running.
- Amount of funding you request. You’ll be much more likely to get approved for startup funding for your small business if you request a small amount (such as $5,000 or less). As that number increases, lenders will probably ask for more proof that you’ve done your research and have a solid business plan in place before they finance you.
- Portion of the project that’s already funded. You may have more success getting startup financing if you can show that your business already has support. Businesses that have 50% or more of their startup funding already lined up should have better success with lenders.
How do I choose the right business startup loan in Canada?
There are a number of factors that you should consider when applying for startup funding loans:
- Loan amounts. Some lenders offer relatively small startup business loans while others may lend you up to $1 million. Your best bet is to look for the loan amount that suits you best at an interest rate you can afford.
- Interest rates. The interest rates you’ll pay can make or break your loan experience. You may be able to qualify for rates as low as 3% or as high as 40% – but it makes sense to avoid any rates above 15% if you want to repay your loan in a suitable time frame. Learn more about business loan interest rates.
- Loan terms. Loan terms can range from 6 months to 20 years, depending on how much you borrow and how long you want to take to pay it back. You should aim to get the shortest term available that still gives you manageable repayments.
- Fees. Many business startup loans come with hidden fees that can drive up the cost of your loan. Make sure you understand how much you’ll have to pay for application and origination fees as well as any ongoing annual or monthly fees.
- Repayment options. Some loans need to be repaid in regular installments while others claim a portion of your monthly sales as payment. Pick the option that makes the most sense for your future business needs.
- Cash availability. Taking out a business startup loan in Canada will give you a lump sum of cash to spend right away. Opening a line of credit can give you access to a revolving line of cash that you can borrow and repay on your own schedule.
How to apply for a loan for a new business
Application process
- Fill in an online application with the lender of your choice by visiting their website.
- Input personal information such as your full name, date of birth, address, phone number and email.
- Provide details about the business you intend to start and make sure to include a comprehensive business plan to show that you’ve done your research.
- Provide financial details such as your bank name and transit number as well as your personal or business account number.
- Submit to a credit check or fill out the necessary paperwork to put up an asset as collateral to secure your business startup loan.
Loan eligibility requirements
To qualify for a startup business loan in Canada, you may need to meet the following eligibility requirements:
- You have to be at least 18 years old or the age of majority in your province or territory.
- You’ll need to be a Canadian citizen or a permanent resident with a valid Canadian address and two valid pieces of identification.
- You may need to show that you already have a portion of your financing needs covered by your personal finances or contributions from investors.
- You’ll typically need to have a minimum credit score of 650 and not be recovering from a recent bankruptcy or consumer proposal.
You may be asked to sign a personal guarantee to assume personal responsibility for your startup loan if you can’t make your repayments.
Pros and cons of business loans for new businesses
Benefits
- Higher loan amounts. You may be able to borrow as much as $1 million in startup funding, depending on factors such as your personal credit score and business plan.
- Competitive interest rates. You’ll usually get fairly competitive rates if your credit history is solid and you don’t have any missed payments.
- Many loan options. You can apply for a number of different startup loans for small business, depending on your unique set of needs and personal situation.
- Reduced personal liability. You may be exempt from personal liability for repaying your startup loan as long as you don’t sign a personal guarantee.
Drawbacks
- Can be difficult to qualify. You may have trouble qualifying for startup funding loans if you don’t have a solid professional reputation or a well-developed business plan.
- High credit score is required. You’ll generally need a credit score above 650 to apply for startup business loans.
- Can be expensive. Lenders may charge you more for your loan since lending to a startup carries more risk than lending to a business that can show proof of revenue.
- Personal guarantee may be required. You could be required to sign a personal guarantee, which makes you personally liable for repayment.
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Bottom line
There are many types of startup business loans that you can take advantage of to get your business off the ground. Just make sure that you have a decent credit score and a solid business plan to bolster your application. You can also pursue a personal loan or an alternative method of funding (such as crowdfunding or equity-sharing) to get the startup funding you need.
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