Getting a business loan in Canada comes down to three things a lender examines first: how long your business has been operating, whether your revenue and cash flow can support the repayment, and what security you can offer. The rest of the application exists to prove those three points.
What lenders assess before they say yes
Business lending is risk pricing. A lender is not deciding whether your business is a good idea; it is deciding how likely it is to be repaid, and at what price. Most of the questions on a commercial loan application trace back to that.
- Time in business. Established businesses with several years of filed financial statements are the easiest to finance. Newer businesses are not automatically refused, but they usually face more conditions: a personal guarantee, a larger down payment on the asset being financed, or a program where a third party shares the risk.
- Revenue and cash flow. Profit on paper is not the same as money in the bank. Lenders look at whether cash arrives regularly and what is left after operating costs, taxes and existing debt payments. A seasonal business may need to show how it covers the slow months.
- Security. Assets that can be pledged include equipment, vehicles, inventory, receivables and commercial real estate. Where there is not enough security, lenders often ask for a personal guarantee from the owners.
- Credit history. Both the business credit file and the owners' personal credit files usually matter, especially for sole proprietors and small corporations where the owner's finances sit close to the business.
- Industry and market. Some sectors are seen as more volatile than others. Expect questions about your customers, your contracts, and what happens if your largest client leaves.
Term loans versus lines of credit
These are the two workhorses of small business borrowing in Canada, and they solve different problems.
A term loan advances a lump sum that you repay on a set schedule over a set period, usually with interest calculated on the declining balance. It suits a one-time cost with a long life: equipment, a vehicle, leasehold improvements, or buying a competitor.
A line of credit is revolving. You draw what you need, repay it, and draw again up to a limit. Interest is normally charged only on the outstanding balance. It suits working capital, such as covering payroll and supplier invoices while you wait for customers to pay.
| Feature | Term loan | Line of credit |
|---|---|---|
| How funds are advanced | One lump sum at the start | Repeated draws up to a limit |
| Repayment | Fixed schedule over a set term | Flexible, with a minimum payment or interest only |
| Interest | Charged on the declining balance | Charged on the amount outstanding at the time |
| Typical use | Assets and one-time investments | Day-to-day cash flow and seasonal gaps |
| Security | Often secured against the asset purchased | Often secured against receivables and inventory |
| Main risk | You owe the full amount even if revenue falls | The limit can be reviewed or reduced |
Many businesses end up carrying both: a term loan for equipment and a line of credit for working capital.
Government-backed programs and public resources
Canada has a layer of public programs that change the risk calculation for lenders, or lend directly.
- Canada Small Business Financing Program. A federal program delivered through participating lenders. The lender makes and administers the loan, and the program shares the risk of default with the lender. Eligibility rules, eligible assets and maximum amounts are set out on the official program page, and not every lender participates.
- Business Benefits Finder and Canada Business resources. The federal government maintains a searchable list of programs, grants and financing at canada.ca, filtered by region, industry and business stage.
- Regional development agencies. Each region of Canada has a federal agency with financing and support programs aimed at businesses in that region.
- Provincial and territorial programs. Provinces run their own loan guarantees, sector funds and advisory services. Rules, deadlines and eligibility vary widely, so check the provincial government site rather than a summary.
- Federal Crown lenders. The Business Development Bank of Canada lends directly to small and medium sized businesses, including some that do not fit a conventional lender's criteria.
Public money is not free money. A guarantee lowers the lender's risk; it does not remove your obligation to repay, and a personal guarantee may still be required.
How to prepare a strong application
- Define the amount and the purpose. "Equipment purchase, quoted at $X, delivery in March" is a stronger request than "some working capital".
- Gather financial statements. Most lenders want two or three years of year-end statements if you have them, plus recent interim statements. Sole proprietors and partnerships should also have tax returns and notices of assessment ready.
- Build a cash flow projection. Show revenue, costs and debt payments month by month for the next 12 months, and show how the new payment fits. This is where many applications are won or lost.
- Write a short business plan. A few pages is usually enough: what you sell, who buys it, how you price it, who your competitors are, and how the loan changes the picture.
- Pull your credit reports. Check both the business and personal files before a lender does, and correct errors.
- List your assets. Equipment, vehicles, real estate, receivables and inventory, with approximate values and any existing liens.
- Prepare the paperwork. Business registration or incorporation documents, business number, licences and permits, leases, key contracts, and the owners' identification.
- Explain problem spots in writing. A slow year, a consumer proposal in the past or tax instalment arrears? Address it directly with context and explain what changed.
Check the full cost before you sign
The advertised rate is not the whole cost. Ask about the annual percentage rate, which folds in fees and charges, not just the interest rate. Ask whether the rate is fixed or variable, what happens on early repayment, whether insurance is optional or required, and exactly what a personal guarantee covers.
There is a hard ceiling in Canadian law. The federal criminal rate of interest is 35% APR, in force since 1 January 2025 under the Criminal Interest Rate Regulations (SOR/2024-114). Any loan agreement charging above that threshold is a criminal offence.
This guide was prepared by the Instalment.ca Editorial Team.
Sources and further reading
- Canada Small Business Financing Program: official program rules
- Business grants and financing: federal program search
- Start a business: registration and federal requirements
- Criminal Interest Rate Regulations (SOR/2024-114)
This article is general information, not financial, legal or tax advice, and Instalment.ca is a loan matching and comparison service, not a lender.