All you need to know about small business loans

Obtaining a loan can prove to be hectic for small businesses. Small business loans in Canada are given out to clients who are in need of purchasing, expanding or upgrading their businesses assets. When picking up a loan, there are options available for one to choose from. These options include: flexible payment, fixed or floating interest rates, and secured or unsecured options.

Eligible purposes to be awarded a small loan 

  • Those who want to buy or upgrade buildings and land intended for commercial purposes.
  • Buy or upgrade a brand new or second hand equipment.
  • Buying of existing leaseholds or new ones, which can include renovating of a leased property.

What you cannot use the loan for. 

  • Development and research
  • Franchise fees
  • Inventory
  • Working capital
  • Goodwill

What amount of loan can be given out?

Financial institutions can lend up to $1,000.000 to a person in need.

What to do when applying for a loan?

It is the responsibility of financial institutions to give out the loaning program and only themselves approve it.

A person in need of a small loan in Canada will have to approach and discuss his/her needs with a financial officer at a bank or credit union of his/her choice. The proposal is reviewed by the officer, who then decides on your application. If the proposal gets an approval, the borrower is given the funds and is also registered at Innovation, Science and Economic development Canada.

Costs of repaying the loan back.

The financial institution which lends you funds will be the one responsible for determining the interest rate, if it is fixed or variable. 

  • For a fixed rate, the maximum you can be charged as a lender is the single family residential mortgage rate for the whole period of the loan with an additional 3%
  • For a variable rate, the maximum charged rate is the lender’s major lending rate with an additional 3%

Apart from that a 2% registration fee of the whole loan will be paid to the financial institution by the borrower. This can feature as a part of the loan.

Some part of the interest and registration fee is given to Innovation, Science and Economic development Canada, by the financial institution to assist in offsetting the government’s cost of running the program.

Financial requirements which borrowers need to comply with.

Borrowers need to give a security of the assets they are being financed for. The financial institution has the right to also take an extra unsecured individual guarantee

What you need to know before going for a small business loan

All possible small business loan providers have their own eligibility requirements which differ from each other. But at the end of the day, they all converge to the fact that they expect the borrower to be possessing a workable business idea, which won’t backfire.