How does credit history affect getting a business acquisition loan?

Credit history is one of the inputs BDC names in a lender’s pricing, and what weight it carries is a question for each lender. The sources below do not describe a credit score cut-off, so no page can honestly tell you what a weak credit file will cost you. What they do show is where credit sits in a lender’s review and what a borrower can prepare. If your file has problems, raise them early with each lender.

Where credit shows up in the lender’s review

BDC’s explanation of the prime rate says each financial institution looks at various elements before granting a variable-rate loan to an individual or a company, to work out the margin it will charge. BDC senior economist Jovanka Charbonneau says it looks at the customer’s profile, credit file and risk rating. That sentence is about pricing. It does not say how a lender decides whether to lend at all.

What a lender asks you to bring

BDC’s business purchase loan page lists what to have ready: your Notices of Assessment from the Canada Revenue Agency, the business’s financial statements or income tax returns, an agreed price and a letter of intent. These show your personal and the business’s tax history. Request your Notices of Assessment early and check that your own records agree with them.

What a government-backed loan does not change

Under the Canada Small Business Financing Act, a loan must be made by and with the consent of a lender, and, subject to the limits in the Act, the Minister is liable to pay a lender an eligible loss on a loan for which the Act’s and the regulations’ requirements have been satisfied. The payment runs to the lender, and the loan still needs the lender’s consent. The regulations also let a lender take unsecured personal guarantees in addition to primary security, up to a limit they set, which is a term to discuss if your credit is thin.

If a lender has already said no, Why did my bank turn down my acquisition loan? covers what to ask.