Startup business loans in Canada: what is realistic

The honest starting point: most business lenders, including the ones we work with, lend against a track record. They read months of bank statements to see what the business brings in. A business that has not opened yet, or opened last month, does not have that to show.

That does not mean there is no money for a new business. It means it comes from different places, and they expect different things.

If you are buying an existing business rather than starting one, the options are wider — see financing the purchase of a business.

Futurpreneur, if you are 18 to 39

Futurpreneur is a national non-profit that lends to young entrepreneurs starting or buying a business. Its core program offers up to $75,000: up to $25,000 from Futurpreneur, and up to $50,000 more from BDC alongside it — plus up to two years of mentorship.

It expects a business plan and cash flow projections, and it is built for businesses that have not started or are very new. See futurpreneur.ca for the current terms.

Community Futures, if you are outside the big cities

Community Futures offices lend to businesses in rural and smaller communities across Canada, including startups. Loans of up to $150,000 are common, though the limit and the terms depend on the local office. They also offer free business advice, which is worth as much as the loan to many first-time owners.

BDC

The Business Development Bank of Canada lends to businesses the big banks consider too young or too small, and works with Futurpreneur on the loans above. Expect it to want a business plan and to look closely at the owners, since there is little history in the business itself.

The Canada Small Business Financing Program

The CSBFP is available to new businesses as well as established ones, through your bank. It is especially useful for the things a startup buys up front: equipment and leasehold improvements. The bank still makes the decision, and will want a plan and usually a personal guarantee.

Equipment financing

If what you need is a specific machine, vehicle or piece of kitchen equipment, equipment financing can sometimes work for a young business, because the equipment secures the loan. Expect more questions about the owner, and possibly a larger deposit.

Grants

There are grants for new businesses, but most are narrow — a sector, a region, a group, a specific kind of project — and paid after you spend. Grants or loans covers where to look and what to expect.

Personal credit: careful

Many founders end up funding the start with a personal line of credit, a credit card or a home equity line. It is fast and it works, and it also puts your own finances directly behind the business. If you do it, keep business spending in a separate account from day one — those statements are what your first business loan will be judged on.

What makes a new business fundable

• A plan with numbers. For startup lenders this is the file, in place of statements.
• Your own money in. Lenders want to see the owner sharing the risk.
• Relevant experience. A chef opening a restaurant reads differently from someone who has never worked in one.
• Clean personal credit. With no business history, the owner's history carries more weight.

When to come back to us

Once the business has been trading for a while and money is going through its own account, the options widen considerably — term loans, lines of credit and asset-based lending all become possible, read from the statements rather than from projections. How to get a business loan in Canada covers the route from there, and six months of statements explains why the statements matter so much.