Chapter 5

How to get a business loan in Canada

Getting a business loan is still one of the most common ways to finance a business. So let’s look at how to get one.

Getting a small business loan in Canada

Getting a small business loan can help you get your business on the road to growth and profitability. Before you can access these funds, you must convince a bank to lend you the money. Business loans are one way for businesses to access the capital required to expand, cover day-to-day operating costs, acquire competitors, and more.

What is a business loan?

A business loan is a lump sum of money you borrow from a financial institution or government agency for business-related purposes. These include paying for startup costs, buying supplies, conducting research and development, or expanding your operations.

The interest rate and term of your business loan will vary, depending on what you choose. As with any type of loan, you’re required to pay back the funds on an agreed-upon schedule. Businesses can also borrow money via a line of credit or a credit card where money is borrowed, repaid and borrowed again over a period of time. However, getting a long-term business loan at a fixed rate is better than putting all expenses on a credit card.

Common types of business loans in Canada

In Canada, business loans come in many forms, including:

Startup financing

These loans are for entrepreneurs just starting out who may have difficulty securing a loan because they don’t have strong profits or a performance track record.

Small business loan

A wide variety of small business loans are available with a broad range of maximum loan amounts and eligibility requirements. Some lenders may require a business to be in operation for a set period of time or have minimum average monthly revenue.

Commercial real estate loan

These loans allow real estate developers to access capital to buy more properties, pay for construction on new sites, or upgrade facilities.

Working capital loan

This type of loan helps businesses to grow and explore new revenue streams without draining daily cash reserves.

Business acquisition loan

These loans provide businesses with funds to acquire another business, such as a competitor or a company expanding their products and services more quickly.

Equipment purchase loan

This kind of business loan provides funds to upgrade industrial equipment and modernize operations.

Technology purchase loan

These provide funds to help businesses upgrade hardware, such as servers and computers, as well as software.

Purchase order loan

This type of loan helps businesses to purchase large inventory orders and pursue new entrepreneurial opportunities.

Where to get a business loan

Options for obtaining a business loan in Canada include the following:

  • traditional banks
  • credit unions
  • government
  • angel investors
  • friends and family

Banks, online financial institutions and credit unions offer loans and lines of credit targeted for business. For businesses that don’t qualify for a traditional bank loan, the Business Development Bank of Canada (BDC) may be a good option. BDC is owned by the Government of Canada. Its loan rates tend to be higher than those offered by the big banks but are more favourable than those charged by alternative lenders.

Borrow from a bank or credit union

The local bank branch is the traditional source of capital for Canadian small business owners. It's usually their first stop for business financing, particularly when they already use other banking services like business chequing and savings accounts and business credit cards.

Borrowing from their bank is a good option for many small business owners, provided they can meet potentially rigid qualification criteria. However, even if you meet requirements, a bank loan may not be your best option. It makes sense to investigate all avenues to pick the loan that best aligns with your small business needs.

While different banks may evaluate your businesses differently, the basic criteria they consider when reviewing your small business loan application include:

  • Personal credit score: Most banks like to see a score of 700 or better. Personal creditworthiness will always be a factor in loan approval decisions.
  • Collateral: Getting approval typically requires a form of collateral to allow lenders to mitigate their losses in the event of a borrower default. Typically, equipment, real estate, or other high-value assets are accepted as collateral.
  • Time in business: Lenders usually look at your track record to see if you can service a small business loan. As a general rule, banks prefer your business to have been running for several years before approving a loan.

Credit unions also offer small business loans in Canada, with similar criteria regarding loans. In some cases, credit unions may offer lower interest rates. However, credit unions may also allow only certain businesses as customers. The Canadian Credit Union Association has more information on what you need to know about their criteria.

Canada Small Business Financing Program

The Canada Small Business Financing Program (CSBFP) helps small businesses get loans from financial institutions by sharing the risk with lenders. Over the past decade, small businesses have received more than 53,000 CSBFP loans, totalling $10 billion. Small businesses or startups in Canada with gross annual revenues of $10 million or less (excluding farming businesses) are eligible for the program. Financial institutions deliver the program and are solely responsible for approving the loan.

Term loans can be used to finance the purchase or improvement of land or buildings used for commercial purposes, the purchase or improvement of new or used equipment, the purchase of new or existing leasehold improvements, or to finance the costs of intangible assets or working capital costs.

Lines of credit can also be used to pay for working capital costs as well as day-to-day operating expenses of the business.

Angel investors

An angel investor can provide startup money for a business, in exchange for some ownership equity in the business. Some continue to be involved, while with others, it is a one-time loan. In Canada, the Angel Investor Network helps connect businesses and investors.

Friends and family

Of course, many businesses get started via loans from friends and family. It’s important to set repayment terms and not take the money for granted.

How to get a business loan

Business loans are a good way for entrepreneurs to access capital for expanding and growing their businesses. On the other hand, they also potentially add to your long-term debt, with adverse financial consequences if payments are not made on time. It’s important to be sure a business loan is right for you. So first analyze your business's needs to determine if you need a loan and have a solid plan for using the funds. If your business is doing well and showing promise, a business loan may provide the impetus for future growth and a more profitable venture.

Determine why you need a bank loan

A productive loan can help a business see immediate results if the new capital is deployed effectively. Here are several reasons why a small business loan might be right for your business:

For expansion

If your business is already successful and you’re ready for the next step, consider getting a small business loan in order to expand. For example, you may want to purchase more property to accommodate growing operations to boost sales and be more profitable.

For equipment

Purchasing or upgrading equipment can be costly. If your business needs new equipment to grow, a small business loan will allow you to lease or buy what you need to fuel your growth.

Purchase inventory

Taking out a small business loan to purchase inventory is a common practice as purchasing enough products to fill orders or a store can be expensive, particularly for seasonal businesses.

Increase working capital

If you need additional working capital for daily operations, a business loan will allow you to cover expenses until your cash flow improves. However, working capital loans have a higher interest rate, as lenders view them as risky.

Consolidating debt

Running a successful business may mean you have acquired a lot of debt. A small business loan lets you consolidate all of your debt into a manageable monthly payment.


Getting the word out about your business can be the difference between success and failure. A small business loan will allow you to afford marketing to promote your business and build up your clientele.


Redesigning and redecorating a storefront can be expensive. A small business loan can help you pay for the updates and grow your business at the same time.

Write a business plan

A solid business plan is central to a successful loan application. It should include financial statements to allow the bank to understand a business's financial health, profitability, and capacity to repay debt. The plan also needs to include future financial projections for the next year to give the bank a credible view of your business forecast. You can use our free business plan template.

Consider your repayment terms

Loan terms and conditions may vary depending on the lender. First and foremost, the agreed-upon interest rate will determine the amount that’ll need to be repaid every month, but other factors need to be considered as they can ease the pressure on your business in challenging times. They include:

  • Amortization period: Longer repayment terms mean higher borrowing costs, but they also have lower monthly payments that can ease the burden on your cash flow.
  • Debt covenants: Covenants are promises made by borrowers as part of their loan agreements. When a borrower breaks a covenant, the loan may technically be in default, and the bank may require the entire loan to be paid back.
  • Financial reporting requirements: Most loan terms have strict financial reporting obligations requiring that financial statements and reports be provided to the bank on an annual basis. Smaller loans typically have less demanding reporting requirements.

Talk to a financial planner

It’s important to have a robust financial plan for growing your business. Whether you’re just starting out as an entrepreneur or you have a mature business, it’s critical to devote time to discussing matters with a financial planner and getting their expert advice on managing all aspects of your business.

Decide on the type of loan you need

Once you’ve decided to apply for a business loan, the next step is to identify the type of loan that’s best suited to your needs. BDC, for example, offers loans to different kinds of businesses including new ones (businesses with at least 12 months of revenues for startup financing) and technology businesses (financing for early-stage and established tech firms working in the technology industry). BDC offers a variety of loan types to help owners meet their goals, including:

  • smaller loans (loans for businesses seeking smaller amounts of financing)
  • growth and transition capital (financing solutions for quickly growing businesses with insufficient tangible assets for collateral security)
  • intellectual property (financing for businesses seeking to commercialize intellectual capital assets)

Apply for a loan

Applying for a bank loan requires an application with detailed information about you and your business. This includes:

  • Business plan outlining why you’re interested in a loan and its benefits for your business
  • Business and personal financial statements for the last three years, with balance sheets, income statements, and net worth information on the business owners
  • Insurance policies with details of coverage on the business
  • Proof of incorporation with full details

Banks aren’t as speedy as some other lenders when it comes to processing and approving loans, but they’re getting better. Some can make faster decisions if they have digital access to your financial records through online accounting software such as Xero.

Get more tips on how to get a loan in the chapter on pitching for business funding.

Business loan alternatives

If you don’t qualify for a traditional business loan or are seeking an interest-free injection of cash, you could consider an entrepreneur assistance program. The Canadian government, as well as provincial and regional authorities, have a wide range of business grants and financing options, from interest-free financing to loans to help young professionals develop a viable side hustle. There are also loans, grants, and subsidies to support businesses in specific industries and regions.

In addition, targeted funding is available for women entrepreneurs, Indigenous entrepreneurs, Black business owners, and newcomers to Canada. Plus, the Business Development Bank of Canada (BDC) offers a loan of up to $60,000 to entrepreneurs between the ages of 18 and 39 to help them launch or expand a business.


Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the content provided.

How to finance your business

Need finance for your business? Learn about the types of finance, approaching lenders and investors and more.

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  2. How much business funding do you need?

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  3. Debt versus equity finance

    Most forms of funding fall into one of two camps. Let’s look at the main pros and cons of debt versus equity.

  4. Main types of finance

    It takes money to make money. So what sort of finance options are there? Here are the types that fund most businesses.

  5. How to get a business loan

    Getting a business loan is still one of the most common ways to finance a business. So let’s look at how to get one.

  6. Peer-to-peer lending

    Peer-to-peer lending is an alternative method of getting a business loan. How does it work?

  7. Friends and family loans

    Friends and family loans may be available when other types of finance aren’t, but they do require some precautions.

  8. Invoice financing

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  9. How to find investors

    How do you find investors for equity financing? Let’s look at what types there are and where to locate them.

  10. Angel investors versus venture capitalists

    Angel investors and venture capitalists are alternative finance sources. What can they offer your business?

  11. How crowdfunding works

    Crowdfunding can get you the money to build a business, and the attention to build a customer base.

  12. Small business grants

    Grants are a great funding option for some businesses. They can be a lot of work to get, but the reward is free money.

  13. Pitching for business funding

    Seeking business funding is a major step but you needn’t be daunted. Here’s how to pitch your business.

  14. Tools and guides for your business

    Now that you’re in business, you want to stay there. Xero’s got resources and solutions to help.

Download the guide to financing your business

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