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A business loan can help you launch a business or propel an established business to new heights of growth and profitability. To obtain funds to grow your business, however, you will need to convince a bank to give you a loan.
According to Andy Mittra , Assistant Vice President , Business Development at BDC, preparing a successful loan application involves three important steps.
Then you have to find the type of loan that suits your needs. Finally, you need to write an effective loan application using the right documents and preparing well.
Knowing why you need a loan will help you determine the type of loan you need, the amount to request and the ideal terms for your business.
Assistant Vice President, Business Development, BDC
1. Why do I want to get a business loan?
The first step is to determine your reasons for wanting a business loan. Banks offer many types of business loans. The best option depends on your specific needs.
There are different types of loans that meet different needs, from starting a business, acquiring another business, expanding a technology business, and investing in equipment, technology, or a building.
Prioritizing your needs will help you determine what types of loans are best for you and how to make your case to a bank.
How much should I ask?
It is also essential to know your needs well to determine how much you should ask for. It’s important not to go into debt beyond your means, but it can be just as important not to underestimate your financing needs by borrowing too little. You could be facing a cash crunch at the wrong time.
Calculate your needs by reviewing or updating your cash forecasts . This will allow you to forecast your working capital shortfalls over the next 12 months, including any periods when you will have large cash outflows due to planned investments. Plan your funding request to ensure you have enough cash throughout the year.
2. What type of business loan is best suited to my needs?
Types of loans
The next step is to decide which type of loan is best for your business.
New companies
Businesses that have had revenue for at least 12 months can apply for start-up funding. This type of loan can be used to:
buy assets
pay start-up costs
buy a franchise
create a website
hire a consultant
replenish your working capital
Businesses that have had revenue for less than 12 months may be eligible for financing offered by certain BDC partners, including:
Futurpreneur Canada
The Community Futures Network of Canada
Technology companies
From growing start-ups to well-established companies, tech companies can get financing tailored to the tech industry . Here are some eligible projects:
development of new products
hiring staff
investments aimed at customer acquisition
acquisition of another company
expansion into new markets
Small loans
Established businesses that want to borrow small amounts can apply for a small business loan . This type of financing can often be obtained quickly by applying online. It can be used for:
buy equipment, software or hardware
upgrade a website
buy inventory
pay suppliers or employees
Commercial real estate
A commercial real estate loan can allow:
to buy land or buildings
to pay for the construction of new facilities
expand or renovate your current facilities
to replenish the working capital reduced by real estate expenses
Working capital
A working capital loan allows businesses to make investments without jeopardizing their current cash flow. Here are some eligible projects:
top up your line of credit
launch growth projects
increase profitability
Purchase of a business
Financing for the purchase or transfer of a business allows:
obtain funds for a business acquisition, management buyout, family estate or vendor financing
to acquire land or other business assets
Investments in equipment
Equipment financing can help you:
expand your capabilities with new machinery or equipment
improve your efficiency by modernizing your activities
top up your line of credit if equipment expenses are depleting your working capital
Purchase Orders
Purchase order financing allows you to fulfill large orders and capture new business opportunities. This allows you:
accept larger contracts and purchase the necessary inventory
to expand into new markets
pay your suppliers upfront
Purchase of technology
Technology funding is for all types of businesses, not just technology companies. It can allow your business:
purchae hardware or software
to invest in digital marketing
hire a specialist to help you plan your IT or online sales
Growth capital and business transfer
Medium-sized businesses that are growing and have high revenues can seek growth and transition capital . This solution allows businesses to raise capital when they don’t have enough tangible assets to pledge and don’t want to dilute their stake. Here are some options:
