What is a business loan and how do I get one?

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Loans can help new or established businesses take the next step. This guide will help small business owners in Canada better understand business loans. It will also contain information on how the Cubeler  Business Portal improves the trade finance application process for small and medium-sized enterprises (SMEs).

This guide will help small business owners in Canada better understand business loans. It will also contain information on how the Cubeler ® Business Portal improves the trade finance application process for small and medium-sized enterprises (SMEs).

What is a business loan?

A business loan is a sum of money lent by a bank, credit union, alternative lender or government agency and repaid regularly until the loan amount is paid in full.

There are three options for loan repayment terms: short term, medium term and long term. Borrowers repay the principal amount lent to them and interest (the premium paid to the lender for the lump sum received by the borrower).

Loan amounts, repayment terms and interest rates vary by type of financing, financial institution and eligibility criteria. The lender determines these conditions before disbursing a sum of money.

Business loans are best suited for large business-related expenses. Here are some common uses for a business loan:

Only businesses incorporated federally (with the Government of Canada) or provincially (for example, with Revenue Quebec if the business is located in Quebec) are eligible for a business loan.

Common types of business loans in Canada

Various types of loans are available to Canadian businesses and each has different uses depending on the needs of the business.

Given the large sums usually involved in this type of financing, the primary target for commercial loans is mature businesses.

To help start-ups access business loans, the Government of Canada offers several programs to secure financing from financial institutions.

Here are some of the most common types of loans available to Canadian businesses.

A businesswoman and a businessman are discussing the contents of a laptop, sitting in a cafe.

Start-up loan

Start-up loans are for new businesses that meet specific eligibility criteria, such as a good credit history and strong sales potential.

In some cases, new businesses are eligible for small business grants through programs offered by the Government of Canada .

Working capital loan

A working capital loan is used to help businesses finance their day-to-day operations.

Loan for equipment financing

An equipment finance loan is used to purchase, upgrade or improve equipment.

Purchase Order Financing

Purchase order financing is a type of loan that businesses can use to purchase materials needed to fulfill contracts or pending orders.

Loan for the acquisition of a business

A business acquisition loan is used to purchase another business, often a competing business.

Commercial real estate loan

A commercial real estate loan is a long-term loan used to purchase commercial real estate. This type of business loan is suitable for upgrading or buying new real estate for businesses.

How to apply for a small business loan

Applying for a business loan is often a long and daunting process for many small business owners. However, by following these four steps, you can save a lot of time and frustration.

1. Understand why you need a business loan

While this step may seem obvious, understanding why you need a business loan is essential.

As noted above, there are many loans and borrowing products for businesses, and some loans are better suited for specific purposes.

Understanding why you need a loan will also help you prepare the proper documentation before you apply and understand if a loan is the best product for your financing needs, as commercial credit cards and commercial lines of credit might be more appropriate.

2. Prepare the required documents

If your business is already registered with the Government of Canada (and Revenu Québec if you live in that province), you can start preparing the necessary documents.

Some of the most common documents include proof of a bank account in your name or in the name of your business, a personal credit score, and a business credit score.

You will also need financial statements or tax returns for the past two years, as well as financial projections for the next two years.

Some lenders may require a business plan to understand why your business needs financing.

3. Compare loans

Now that your documents are in order, you can start comparing the best Canadian business loan rates.

When comparing, consider the term of the loan, the interest rate, the percentage that the financial institution will finance, its flexibility and the guarantees that it requires.

When you find a loan that meets your business needs, read the fine print and understand the requirements and terms of signing the loan.

4. Ask for a loan

After you submit your loan application, a representative will contact you to let you know if the loan has been approved or denied.

Final Thoughts on Getting a Business Loan in Canada

Applying for a loan for your business shouldn’t be a daunting process. Although applying for a business loan can take time, securing the right capital can help your business take the next big step towards success.

The business financing process can be simplified with the help of the Cubeler ® Business Portal . This free platform makes it possible to speed up the application process and to be put in touch with lenders looking for companies to finance.

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