Getting a startup loan in Canada: what lenders need to see

Why startups are harder to finance

An established business can show years of cash flow. A startup can only show a forecast. That means the lender leans on the things you can prove today: your own money going in, your personal credit, your experience in the industry, and how realistic your numbers are.

Expect to sign a personal guarantee. With no business history, the lender is largely lending to you.

What a lender will look at

• Your equity. How much of your own cash is going in. Many lenders want to see a meaningful share of the project funded by you. See equity and down payments.
• Your credit. Your personal credit history stands in for the business’s. See credit score.
• Your experience. Years working in the same industry count for a lot. See industry experience.
• Your projected cash flow. Monthly revenue and expenses that show the loan payment can be made with room to spare. See cash flow.
• Your personal net worth. What you own minus what you owe, as a cushion if things start slowly. See personal net worth.

Where startup financing usually comes from

Banks and credit unions lend to startups, often under the federal Canada Small Business Financing Program, which shares the risk with the lender and is open to start-ups. Community lenders, such as Community Futures offices (called CBDCs in Atlantic Canada), also lend to new businesses, and some programs focus on younger founders.

Whichever you approach, the same basics apply: they want to see that you've put your own money in, that you know the industry, and that the numbers can carry the payment.

Before you apply

• Write a simple business plan with monthly projections for at least the first year
• Know your credit score and clear up any errors or overdue accounts
• Decide how much of your own cash you're putting in, and be able to show where it came from
• Work out your personal net worth: what you own and what you owe
• Run your numbers through a readiness check so you know your weak spots first

Common questions