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Tips to help you get a Small Business Loan in Canada

Updated on May 14, 2012

If you are currently running a small business, or looking to start one, you may require a small businss loan. These can be used to help you start up or to finance an expansion. Whether you are approaching a family member/friend for this financing or a bank, you will still need to prepare for the meeting with information.

You may not think this is important but consider if someone approached you for a loan. Chances are you would want to know what it was for, how they were going to use it and how they planned to pay it back. In order to come up with this information, you need to prepare and convince the lender that the loan is required and that you are a good risk.

To do this, you will need the following documents:

A Business Plan – This shows the lender why you want the loan and how you plan to use it. It also tends to include other information about your business and industry.

Cash Flow Projections – The first question a lender has is will you be able to pay back the loan? These projections show your expected revenue and expenses and show how you will be repaying the funds.

Statement of Personal Finances – This is a list of your personal assets as well as debts. If you are running your business as a sole proprietorship, this will be a requirement. If you are incorporating, you may not need this.

You may also need the following documents:

Past tax returns – If your business has been operating for a few years, these can help make your case as you can show your lender how your business is doing.

Credit Report – Another helpful piece of documentation is a copy of your credit report. It shows your history in regards to borrowing money and paying it back. While your lender likely can pull this down and check it, you may want to look at it in advance if you think there may be something on it that is affecting you negatively. You can usually get a free report from the two credit agencies in Canada – Equifax and TransUnion. They may take a few weeks to get but you can get one much quicker if you pay for it.

Next you will need to create your presentation to your lender.

Start by considering the point of view of your lender. Chances are they are more interested in knowing what you are doing what the funds and are you a good risk. To make a good presentation, you need to come up with the correct answer to these questions and present that.

To answer what you will do with the funds is likely the easier of the two. You can point to graphs, charts, market research and a variety of other elements to show why you need the funds and where they are going. Saying that you are going to build a new facility so you can increase your product line and research to back up why you think this product line will be successful is much easier to sell than just saying you need more space.

As for tackling your credit risk, it can be a bit tougher. Be prepared to provide the following information to your lender:

Collateral – If you have something that you are willing to put up against the loan. Maybe this is the new building that the funds are being used for.

Personal Investment – Are you also contributing to the funds? For instance, maybe you need $100,000 for the expansion but you are looking to borrow $70,000. You want to share that you are investing $30,000 of your own money. This shows that you are committed to this and you believe in it.

Experience – You need to prove that you are knowledgeable about the endeavor. Be prepared to explain your experience, education and your ultimate goals to the potential lender.

By taking the time to get your information in order and doing some work and research, you will look more prepared, more confident and able to answer any questions your potential lender may have. If you do not succeed with your first potential lender, you are already prepared to meet with the next. And chances are, you will get some feedback as to why you were not successful to use to improve.


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