business line of credit

How to Get a Business Line of Credit in Canada

What is a business line of credit?

A business line of credit (LOC) is a revolving sum of money lent to a business owner at the cost of interest fees. LOCs are a form of debt financing, in which the owner pays back the borrowed amount over time. A line of credit is different from other types of debt financing. In Canada, these are usually provided by traditional financial institutions – like banks and credit unions. Depending on the institution, business lines of credit either have a fixed rate or a variable rate.

In LOCs the small business owner is granted a pre-approved amount – a credit limit, but the borrower may choose only to use portions of it. The borrower is charged interest rates only on the borrowed amount, not their entire approved amount. It’s like a business credit card but with a much higher credit limit and may not be accessible using a card.

Business LOCs are one of the cheapest funding sources your business can receive and if your business qualifies for one, it’s worth considering because you’ll have access to business cash flow when you need it at a lower cost. A business line of credit can be used to help you solve cash flow problems.

What do I need for a line of credit application?

By nature, the application processing time for a line of credit is a long one. Unlike a small business loan or a term loan, it can take up to a month for you to find out if you get approved or declined. So, it is best to prepare everything ahead of time to help shorten the application time. In addition to the documents below, you will also need to open a business bank account.

Prepare your business documents

    • Trade name registration certificate or a copy of your master business license
    • Business Year-End Financial Statements signed by the owner, for the last two years
    • Investment/deposit statements for accounts at other Financial Institutions
    • Bank account statements at other Financial Institutions, for the last three months
    • If you’re buying business assets
      • the bill of sale/purchase agreements detailing price, serial number/VIN, description, etc.

Collect your personal information

    • Two forms of valid government-issued photo IDs
    • Personal Notice of Assessment / Income Tax Return, including the Statement of Business Activities, for at least two years for the business owner
    • Name, address, and occupation of all individuals having an interest of 25% or more in your business

Where can I apply for a line of credit?

In Canada, you can go to any one of the traditional banks. Going to one that you already have an account with would probably be the easiest. As a quick reference, here are the links directly to set up an appointment once you have the required documents:

    1. CIBC
    2. TD Bank
    3. RBC
    4. Scotiabank
    5. BMO

If you’ve made the business decision to get financing, and you have the documents ready, then you can contact the bank to apply for the line of credit. An online loan application may also be available.

What if I don’t meet the requirements for a line of credit?

1. Consider your situation

Use the information you received from the banks to your advantage. What was the reason for getting declined? Here are some probable reasons:

    • Purpose of loan does not meet the required criteria
    • Your business industry is considered too risky
    • The personal credit score is too low
    • Negative performance reported on the commercial bureau report
    • Bank statements indicate an insufficient amount of revenue to handle the added monthly repayments (even at maximum amortization period)

2. Look for a private lender

Private lenders are less strict on their lending requirements. Your personal credit score is not the only criteria for approval. Plus, since you’ve already collected all of the information beforehand for banks, you can just submit the same documents to the private lenders. Most private lenders don’t need as many documents to make lending decisions. For example, Thinking Capital only needs the following 3 documents from you:

    • Business Bank statements
    • Government Issued ID
    • Void Cheques

Plus you don’t have to go to all the way to a branch just to get a quote. You can apply for business financing online and receive a quote instantly.

Summary

To get a business or corporate line of credit in Canada, you typically have to go to one of the big banks. It’s best to go to the bank you’re already banking with to shrink the application time. Prepare your business and personal documents ahead of time to avoid further delays going back and forth.

Talk to a business advisor at your branch to work out the repayment terms and conditions. If you don’t meet the requirements, review the reason for being denied the line of credit. With this understanding, try a private lender and see if they are willing to provide funding over a short-term, fixed period.

Need business financing?

Thinking Capital can deposit funds straight into your business bank account.

Apply now!