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Advices and insights

To increase your chances of obtaining a small business loan in Quebec, you must have certain information. It will help you submit an effective SME loan application. A small business loan helps you launch your business or consolidate it to take it to new levels of profitability and growth. 

However, putting together an effective application and convincing the bank to give you a loan requires two things. First, you must analyze why you need the loan and then determine how to meet the requirements for the type of loan you need. 

Here are the things you need to do to increase your chances of getting a small business loan in Quebec.

Know your exact financing needs

You will definitely be asked why you feel you need a small business loan. It’s up to you to be able to answer this question, but also the whole galaxy of questions that revolve around it.

Why do you want to take out a loan?

Determining why you want to take out a small business loan is the first step. Banks offer several types of loans. It is therefore up to you to know your precise needs to know which loan to apply for. 

Do you want to start the business? Or are you thinking of acquiring another business? Is your goal the expansion of a technology company? Or do you simply want to invest in the equipment and operating needs of your business?

Knowing and prioritizing your needs will help you answer the second question: how much will you charge?

How much do you need?

Knowing your goals goes hand in hand with the need to determine your needs. Thus, it is important not to go into debt beyond your capacity, but equally important not to underestimate your financing needs. Borrowing too little, for example, exposes you to the risk of running out of cash at a crucial moment.

You need to calculate your needs. This means reviewing or updating your cash flow forecast. This means anticipating your working capital deficits that may arise over the next 12 months. Especially during periods when large cash outflows will be required. Your funding request should be planned and submitted with the understanding that you will have sufficient cash flow throughout the year.

What type of loan best suits your needs?

The next step is to determine which type of SME loan is right for you and your business. In Quebec, there are several types of loans adapted to SMEs. We can list, without being exhaustive :

  • The loan to new businesses that have had revenues for at least 12 months
  • The innovation loan for young technology companies
  • Small business loans for small amounts
  • The commercial real estate loan to finance real estate expenses
  • The working capital loan
  • The loan to finance the purchase or transfer of a business
  • The loan to finance the purchase of equipment
  • The loan to finance purchase orders
  • The loan to finance the ICT which is intended for any type of company
  • Growth capital and business transfer loan
  • The loan to finance your intellectual property assets
  • Loans to support women entrepreneurs
  • Loans to support Aboriginal entrepreneurs
  • Loans to support black entrepreneurs

If you choose the right type of loan, you will have won a key point.

What is the best fit for your company?

When it comes to terms and conditions, many stop at the interest rate. However, there are other elements that are potentially just as important. Loan terms vary significantly from one financial institution to another and from one type of loan to another. It is therefore up to you to seek out the terms that you feel are appropriate.  Here are the key points to analyze:

  • The interest rate
  • The amortization period
  • Lender flexibility in meeting monthly payments
  • The percentage of the personal contribution
  • Debt covenants
  • Collateral requirements
  • Financial reporting requirements

You can also find out about the quality of service at financial institutions, their willingness to negotiate, and other services they offer.

Know the requirements for an SME loan

Knowing the requirements for a small business loan can mean the difference between a successful loan application and an unsuccessful one. You need to be prepared and gather the documents the financial institution needs to evaluate your application.

What documents should I prepare to apply for a loan?

The key to a successful loan application is undoubtedly the business plan. When properly prepared, it makes the rest of the process much easier. It should include financial statements and financial projections for the business.

Financial statements provide a better understanding of a company’s financial health, profitability, and ability to repay debt. The financial institution carefully reviews these statements. For large loans, institutions often request financial statements for the past two years. Income tax returns may replace the financial statements in some cases.

Monthly cash flow projections allow the institution to look ahead 12 or 24 months. The figures must be realistic; too optimistic and they undermine the credibility of the case. At the same time, the creditor may ask you for any other type of documentation depending on the type and size of the business or loan.

How do I prepare to meet with the financial institution?

Before meeting with your creditor, you should review your collateral and personal contribution. Also, check your personal credit rating related to your credit history.

You must also demonstrate to the institution’s representative that you are informed and credible. The way you present yourself, your education, background, and experience will be taken into account. 

A good knowledge of facts and figures as well as conciseness in your development will help establish your credibility. Finally, you should know your financial ratios before the interview begins.

Alicia Gomez - Senior Content Manager | Alicia is an author, blogger, and certified Enneagram coach with a bachelor's in Communications. She's been blogging for six years and run a consulting business offering communications, strategy. Her favorite quote: Be you. Break free. Break through.

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