One of the most common ways entrepreneurs can secure the funds they need is through small business loans. However, the process of obtaining a business loan can be complex. So, let’s explore everything you need to know about getting a small business loan.
What is a Small Business Loan?
Let’s start with a small business loan definition. In a nutshell, a small business loan is a financial product that provides business owners with the necessary capital to start, expand, or manage their business operations. It is usually a lump sum of money that must be repaid with interest over an agreed-upon period.
Businesses can use a small business loan for the following goals:
- Capital for Starting Costs: If you’re starting a new business, a small business loan can help you with purchasing equipment, inventory, and marketing campaigns.
- Working Capital: Small business loans can help cover operational costs, such as payroll, inventory purchases, and rent.
- Expansion Opportunities: You can use a small business loan to expand your physical location or enter new markets.
- Business Acquisitions: Small business loans can be used to acquire other businesses, allowing you to grow your market share and generate more revenue.
Types of Small Business Loans in Canada
There are many different types of business loans available in Canada to small businesses. Learning about them can help you make informed decisions.
1. Startup Financing
Startup financing is specifically designed for entrepreneurs who are just starting their businesses. Startups can use this capital for initial start-up costs, such as equipment purchases, marketing expenses, and operational expenses.
2. Small Business Loan
Small business loans are types of business term loans products designed to help established businesses that have been operating for a certain period. Small businesses use these loans for all kinds of purposes, including working capital, equipment purchases, inventory financing, or hiring additional staff.
3. Commercial Real Estate Loan
Commercial real estate loans are intended for businesses that are interested in purchasing or renovating commercial properties. Real estate businesses can acquire land, construct new facilities, or renovate with commercial real estate loans.
4. Working Capital Loan
Working capital loans are designed to help businesses manage their day-to-day cash flow needs. These loans provide funds to cover operational expenses, such as payroll, inventory purchases, and rent, without affecting the business’s everyday cash reserves.
5. Business Acquisition Loan
Business acquisition loans are used for acquiring other small businesses. A small business can use this loan to purchase a competitor’s small business and grow their business or expand into new markets.
6. Equipment Purchase Loan
As you may have guessed, this type of funding is used for purchasing machinery, tools, or other types of equipment necessary for business operations.
7. Technology Purchase Loan
Technology purchase loans are designed for businesses looking to invest in technology, such as hardware, software, or digital marketing tools. Such loans help small businesses stay competitive in the digital age.
8. Purchase Order Loan
Purchase order loans are designed to help businesses fulfill large orders or contracts. These loans provide the necessary funds to purchase inventory or fulfill customer orders, allowing businesses to seize growth opportunities.
9. Merchant Cash Advance
A merchant cash advance (MCA) is not like a traditional loan. This financing option allows businesses to access capital based on their future revenue. A strong cash flow projection can help you secure a favourable MCA.
Eligibility Requirements for Small Business Loans
To qualify for a small business loan in Canada, you must satisfy a lender’s conditions. Although the criteria can vary between lenders, here are some common requirements:
- Business Age and Revenue: Most lenders prefer to work with businesses that have been operating for a certain period. Additionally, lenders may have a minimum annual revenue threshold to ensure that your business can repay the loan.
- Credit History: Lenders may evaluate both your personal credit history and your business credit report. A good credit score demonstrates your creditworthiness and ability to manage debt responsibly.
- Business Plan: Most lenders will require a detailed business plan that outlines your company’s objectives, financial projections, and how the borrowed funds will be used.
- Collateral: Some lenders may require collateral to secure the loan. Collateral can be in the form of business assets, such as real estate, inventory, or equipment. Providing collateral reduces the risk for lenders and increases your chances of loan approval.
- Financial Statements: Lenders will likely request financial statements, including cash flow projections, balance sheets, and income statements. Financial documents give lenders insight into your business’s financial health and ability to repay the loan. It’s a good idea to learn how to read a financial statement to prepare your loan application.
The Loan Application Process
Now that you understand the different types of small business loans available and the requirements, we can dig into the loan application process. But first, consider gathering your financial paperwork, including your business plan, financial statements, credit reports, and any other supporting documents.
We understand that filling out a loan application form can feel overwhelming, especially with a traditional lender like a big bank. The process can feel convoluted and slow. That’s why we’ve made it easier and simpler to apply for a loan.
With, Levr.ai, you can get started in just a few minutes. Creating your free Levr.ai account is quick and easy. Our platform guides you throughout the entire loan application process. After you share some information about your business, Levr.ai customizes and matches you with the top lenders for the funding you need by using sophisticated algorithms that use artificial intelligence (AI) and machine learning (ML).
Remember, there’s no pressure with Levr.ai. After matching with lenders, you can decide what loan suits your small business needs without feeling obligated to sign up.
