If you’re a start-up, chances are you need a small business loan to get you up and running. If you’ve been in business for a few years, you may need some kind of financing to help your business grow. Either way, getting approved for a small business loan could very well be the lifeline that your business needs. So we’ve put together a checklist of ten things that could help you get that approval.
Small Businesses Loans in Canada
Small business loans are vital to the Canadian economy. With SMEs (small and medium-sized enterprises) consistently creating over 85% of jobs in the private sector and employing close to 90% of private-sector employees, small business loans play a key role in helping to create those jobs.
The Importance of Good Credit
A common theme in this checklist is past credit history. Lenders make their predictions of your future success based on your past performance. Having a personal history of making payments on time and repaying debt can help convince a lender to approve your small business loan – especially for start-ups without any business history.
So without any further delay, here is our 10-point checklist for getting a small business loan:
1. A Well-Prepared Business Plan
Most financial institutions require a strategic business plan as part of their commercial loan application. The more detailed the better. Some typical elements of a business plan include:
- Company objectives
- A description of your industry and your company’s place in the market
- SWOT analysis (strengths, weaknesses, opportunities, threats)
- Your sales and marketing strategy
- Operating strategy
- Bios of your team members
- Current finances
- How you are going to use the money
2. Current and Expected Cash Flow
This kind of report expands on some of the information in your business plan. Cash flow reports typically show current income (or expected income for start-ups) minus expenses. The profit margin is used to predict your ability to repay loans, adds validity to your business plan, and can help determine the terms of your loan. Being able to show a steady stream of income and a high-profit margin is obviously beneficial.
This refers to both your business and personal tangible assets. Assets can also include Accounts Receivable, but we’ll discuss that in another section. For now, the collateral referred to includes:
- Real estate
Anyone familiar with the term collateral also knows that these assets can be seized by the lending institution if you default on payments. Asset seizure is usually avoided and used as a last resort after numerous missed payments.
For start-ups with little-to-no business assets, personal assets are typically used as collateral to secure the loan.
4. Your Personal Credit Score
Your personal credit score is crucial in determining if you qualify for a loan and is used as an indicator of your ability to handle debt. Generally, you need a credit score of around 700 to be considered for a business loan.
If you don’t know your current credit score, this free tool gives you on-demand access to your credit score and credit report, coaches you on how to improve your credit score, and gives you personalized recommendations on investments and financial products like business loans.
5. Personal Credit History and Financial Details
These are needed for all owners/partners in the business. Personal financial details show a lender your personal assets and liabilities and your track record of dealing with debt and repayments. Financial records that may be requested can include:
- Financial details of personal assets
- Personal credit reports
- Investment accounts
- Credit card accounts
- Lines of credit
- CRA returns
6. Business Credit History
Ideally, your business has been up and running for at least 6 months, and, usually, the longer the better. Your business’s credit history is a reflection of your abilities to operate a business. Building your business’s credit history is done much in the same way as building your own credit history – by making payments on time. For start-ups, personal credit history and credit score are used instead.
7. Detailed Accounts Receivable Information
Detailed as in a line-by-line report showing each account holder’s contact information, purchase and payment history, and length of outstanding payments. Accounts Receivable is generally considered an asset (depending on the length of time the account has been outstanding) and may help your business secure a loan.
8. Detailed Accounts Payable Information
A report that includes the same information as the Accounts Receivable report but also provides references from your suppliers. Having businesses you’ve worked with who can vouch for your repayment history can go a long way in reassuring a lender that you’ll repay the loan.
9. Other Financial Statements
Depending on the lending institution, these can include:
- Balance sheets
- Profit & Loss Statements
- Business CRA Returns
Ideally, these financial statements would be prepared by a certified accountant.
Having personal and business insurance policies may increase your chances of getting approved on your business loan application. Insurance acts like a safety net that can help with loan payments if something was to happen to the business or a key member of the business.