What do I need to qualify for a small business loan?

What you need to qualify for a small business loan depends on the lender, so the most reliable starting point is what lenders publish. Two sources are worth reading closely: BDC’s page for its Small Business Loan, and the federal Canada Small Business Financing Program (CSBFP), which works through the lenders that offer it. Neither promises a result. Both set out criteria or rules worth reading before you apply.

The criteria BDC lists

BDC says you are more likely to qualify if your business meets its eligibility criteria. The list includes a minimum annual revenue, a personal credit score, current profits and, for its smaller loan tier, a minimum time in business. For its larger tier, the list names financial statements for a recent period instead of time in business. BDC states plainly that meeting these criteria does not guarantee approval and that every application gets a full review of the business and its owners, so treat them as a screen, not a promise.

Who the CSBFP covers

The program’s own page describes eligible businesses as small businesses or start-ups operating in Canada, with gross annual revenues under a ceiling the program sets. Farming businesses are not eligible under it. The guidelines also say an individual or corporation that buys real property only to rent it out is not an eligible borrower. The guidelines expect lenders to apply the due diligence they would apply to a conventional loan of the same amount, including a credit check or credit references on the borrower or the people legally or financially responsible for it.

What lenders look at beyond the numbers

BDC says that when a working capital loan has no security, bankers look at the company’s cash flow and also at company management, the industry, whether the project makes sense, and the owner’s personal credit score and net worth. It also says that without tangible collateral you will generally be required to sign a personal guarantee. Before you apply, ask each lender:

• What minimum revenue and time in business does it apply to this product?
• Which financial statements will it ask for, and for what period?
• Will it check your personal credit, and what security or guarantee will it want?
• What happens if you meet the published criteria but the lender still declines?

For how the program itself works, see the CSBFP explained.