Boosting Your Odds: A Small-Business Owner’s Guide to Securing a Loan in Canada
Securing growth financing can feel daunting even for established small businesses. Fortunately, most Canadian lenders from major banks, credit unions, fintechs and the Business Development Bank of Canada (BDC) follow a predictable playbook. Use the steps below to present an application that checks every underwriting box and earns a faster “yes.”
1. Choose the loan that matches your goal and stage
Start-up (under two years). Look at micro-loans from credit unions, Futurpreneur start-up financing and small Canada Small Business Financing Loans (CSBFL) for equipment or leasehold improvements. The federal guarantee on a CSBFL (up to $1 million, 85 percent backed) helps very young firms that have limited collateral convince banks to lend.
Growing business (two to five years). When revenue is rising but cash is tight, banks and BDC offer working-capital lines, equipment loans and CSBFL terms large enough to buy property. A BDC Small Business Loan (up to $100 000) can be approved quickly if you already show steady sales.
Established or expanding (five years and up). Conventional bank term loans, BDC Growth & Transition Capital and asset-based lines of credit suit firms with solid profit history that need bigger cheques for acquisitions or new locations.
Matching the product to your age and objective signals to lenders that you respect their risk rules.
2. Choose the loan that matches your goal and stage
Lenders look at something called the Debt-Service Coverage Ratio (DSCR). Think of it this way: for every dollar you will pay to the bank each year, they want to see at least two dollars of operating profit.
Debt-Service Coverage Ratio (DSCR) Formula:
DSCR = EBITDA ÷ (Annual Principal + Interest)
If your EBITDA is $200 000 and yearly loan payments would be $100 000, the DSCR is 2.0, which most Canadian banks call healthy. Aim for 2 or higher; anything close to 1 means every dollar of cash flow is already spoken for. If you fall short, raise profits, repay other debt or add owner equity before you apply.
3. Keep a safety cushion for day-to-day bills
Another quick check is the Current Ratio. It compares what the business owns and can turn into cash within 12 months to what it owes within the same period.
Current Ratio Formula:
Current Ratio = Current Assets ÷ Current Liabilities
Example: current assets $120 000 ÷ current liabilities $70 000 = 1.7. Most lenders want at least 1.2, because that shows you have $1.20 on hand for every $1.00 due within a year. Track this monthly so you spot problems before the bank does.
4 Polish both business and personal credit
Banks pull the company’s credit file and the personal credit scores of any owner who holds more than 25 percent of shares. A personal score of 680 or better is considered strong by mainstream lenders; anything lower can force higher rates or extra collateral. Pay suppliers and credit cards a few days early and keep balances below 30 percent of limits for at least three months to nudge scores upward.
5. Gather the paperwork in advance
Typical items include:
• Articles of incorporation or business registration
• Last two years of year-end financial statements and corporate tax returns
• Interim financials no older than 90 days
• Most recent personal Notice of Assessment for each owner
• Bank or investment statements held outside your main bank
• A simple business plan if the company is under two years old
6. Tell your story with the “Five Cs”
Character – a record of paying debts and all CRA taxes on time
Capacity – proof, through your cash-flow forecast, that new loan payments fit easily
Capital – money the owners have already invested, showing commitment
Conditions – a short explanation of your market and growth plans
Collateral – equipment, real estate, or a general security agreement you can pledge if required
7 Tidy your books and clear any tax balances
Unreconciled ledgers or outstanding GST/HST and Income Tax payable are automatic red flags. Make sure bookkeeping is current and government accounts are paid to zero.
8 Add comfort if your numbers are borderline
Offer extra collateral, bring in a co-signer, or scale back the loan amount now and request a top-up once results improve.
Solid ratios, clean credit, organised documents and a straightforward narrative give lenders every reason to say yes.
Need a hand preparing lender-ready statements or forecasts? FalconSight Accounting Inc. can help translate your business story into banker language.
References:
RBC Royal Bank. “Canada Small Business Financing Loan.” Accessed May 25 2025. RBC Royal Bank
Business Development Bank of Canada. “3 Ratios to Monitor the Long-Term Financial Health of Your Business.” Accessed May 25 2025. BDC.ca
Business Development Bank of Canada. “Current Ratio (Working Capital Ratio) Calculator.” Accessed May 25 2025. BDC.ca
Innovation Federal Credit Union. “How to Get a Small Business Loan with Bad Credit.” Published July 18 2023. innovationcu.ca