Business loan calculator

Business loan eligibility: what you’ll need

A registered business

Banks require your business to be registered or incorporated to provide you with a business loan. Freelance or independent workers without registered businesses cannot obtain a business loan. You can register your business with the government of Canada. Businesses in Quebec also need to register with Revenu Québec.

BDC only offers loans to companies based in Canada.

Age of majority

Owners must have reached the age of majority in the province or territory where they live.

A commercial vocation

The organization must also be a commercial enterprise designed to generate revenues, meaning that not-for-profits are not eligible for loans.

A bank account that matches the name of your business

Whether it’s a business bank account or a personal account, the account needs to match the name of your business.

At least 24 months of operations and revenue generation

You must have been in business for more than 24 months for most types of loans.

Start-ups can explore different sources of financing. For example, to be eligible for BDC financial support when your business is in the start-up phase, you must:

• Demonstrate realistic market and sales potential
• Possess experience or expertise in your field
• Provide personal or credit references
• Demonstrate a reasonable investment of financial resources
• Provide a solid business plan

A sound credit score

Banks will look at two elements before granting you a business loan:

• Your personal credit score
• The credit bureau report on your business

Make sure you have this information before you meet with your banker. Take the time to review it so you can be ready to answer any questions that you may be asked.

Sound financial decisions in your personal life can help you obtain a loan. However, the opposite is also the case: “If you’re buying a boat and cars, and you have a lot of debt that you incur every year, that would be a red flag,” says BDC’s Wesly Joseph, who spent several years assessing borrowers both inside and outside BDC. “Whatever tendencies you have on the personal side, you usually bring them to the business side.”

A good personal credit score is the most critical requirement for loans under $350,000.

For those in business for more than 24 months, the whole process for a loan under $100,000 from BDC takes place online. That means you can quickly and easily submit a loan application. In this case, you must also have a good credit score to obtain the loan.

Company financials

Banks typically want to review your financial statements for larger loans to evaluate your capacity to repay debt. You must at least provide your tax returns if you don't have financial statements.

Banks will also ask for financial projections detailing your monthly cash flow forecast for the next 12 months.

Supporting documents

To apply for a larger business loan, you must provide several documents, such as financial statements, financial projections, and marketing and production plans. These documents will allow your bank to assure themselves of your company’s viability. More details can be found in our article on getting a business loan in Canada or by contacting us.

You can also consult the small business loan FAQ.

Can a salaried person apply for a business loan?

Many people who run fledgling companies hold on to their jobs. However, salaried people can apply for a business loan only if they have a registered business. Whether or not a salaried person runs it, Joseph says a lender typically wants to know that enough time is being committed and that the generated revenue will mitigate risk. “They want to know that the business will be able to support itself.”

How much of a loan can I take out?

When considering the loan size you want to request, consider the monthly amount you can repay.

A simple rule is to consider two elements:

• Your net income, which is your net profit, earnings or bottom line
• The depreciation of your project, which is the asset or project losing value over time

Lenders will also look at your sales when assessing your eligibility for a loan.

According to Joseph, the size of your loan will depend on the amount of sales you’ve been recording. “Say you’re making $100,000 in sales per year, have no debts, and want to take out your first loan. It cannot be more than $100,000.” He says that’s a standard formula banks use to measure their risk.

What is the interest rate on a small business loan?

Loan structures can take many different forms.

BDC calculates the interest rate on a small business loan as follows:

As a result, the interest rate varies by client. Please note that other banks’ calculations may differ.

How much is a typical business loan?

The minimum loan amount at BDC is $10,000. The maximum amount corresponds with the borrower’s facility to repay the loan. “It depends on how much you need to help your business move forward and how much debt your business can take on,” says Joseph.

Which bank is best for a business loan?

Do your research to find the right bank and loan for you. Banks offer loan products that vary from one institution to another.

Start by asking your business contacts about their experiences with a given bank. Ask questions about:

• The quality of service they received
• Any problems they encountered
• What the bank looked for in a loan proposal
• How much the bank was willing to negotiate

In addition to the relational aspects, you should consider several other factors when comparing business loans between banks.

Factors to consider when looking for a loan

1. The loan term
   Loan terms include the contract term and the payment amount to be made. A longer loan term does mean higher borrowing costs over the long term. However, monthly repayments are lower, which can help avoid any cash flow problems.
2. The percentage of the project cost your lender is willing to finance
   The percentage of the project cost the bank is willing to finance will decide how big of a personal investment you will need to make. If you don’t have the entire amount you want, you’ll need to decide whether to work with a second bank.
3. The flexibility on repayments
   Remember that even the best-laid plans can derail your business's finances because of unforeseen events.
   So, ask your banker what would happen if you could not make scheduled loan repayments. What options are available to you? For example, would the bank allow you to suspend your principal repayments temporarily?
   You also need to understand the difference between a term loan and a demand loan:
   
   
   • A term loan is committed capital. This means the bank can’t decide to pull out of your business or industry because of a strategic change.
   • A demand loan is a loan that a lender can require to be repaid in full at any time.
   
   At BDC, all loans are non-demand unless there are arrears in payments. We can’t suddenly decide to pull out.
4. The guarantees you need to provide
   Most lenders in the market are lending based on an asset. They’ll look at a building, for example, evaluate its value, and loan you money on a percentage of that assessment.
   Other lenders, like BDC, will lend you money based on your cash flow. They’ll look at your revenues and your expenses, and then—based on your profits—they’ll give you a loan without needing to take on collateral. This will allow you to borrow additional money to grow your company.
5. The interest rate being offered to you
   The interest rate determines the amount of money you must repay every month.
   You should consider all the previous factors because good loan conditions could save your business if you face any difficulty. So, you must weigh the pros and cons of different options to choose the best loan.

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