If you’re looking to buy or lease commercial real estate, purchase an existing business, or open a franchise location, you’re going to need a loan. Running a business isn’t cheap – especially in major markets like Toronto.
Just like getting a mortgage on a house, securing the financing you need to bring your business goals to life will require a down payment. Your lender needs to know that you’ve got the prerequisite savings needed to be serious about your goals.
In this blog, we’ll look at what you need to put down if you’re applying for a business loan, along with other important information about financing. Let’s get started.
Searching for veteran business brokers who can bring your vision to life? Meet Carve Real Estate.
Where Can You Get a Small Business Loan?
In Canada, entrepreneurs have a few choices for where they can get a business loan. You’ve got crown institutions like the Business Development Bank of Canada (BDC), your traditional major banks like TD, BMO, or CIBC, as well as independent lenders. So, where should you get your loan? It depends.
Every lender offers different loan products, so you’ll want to do your research and explore a few options before signing on the dotted line.
As a side note, certain government programs and initiatives can also help you fund your business. While they may not cover the same amount as a traditional small business loan, they can still alleviate a significant portion of your expenses.
Thinking about buying a restaurant? You may find these related blogs helpful!
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What’s The Minimum Down Payment For Business Loans
When you approach a bank or lender, they’ll want to know what you’re working with in terms of capital. The greater the down payment you can provide up front, the lower the degree of risk they’ll face as a lender, making them more likely to work with you.
Unlike residential real estate, there aren’t formal down payment minimums when it comes to getting a small business loan. However, the strength of your down payment will directly impact what kind of loan you qualify for and show your strength as a buyer (if you’re buying an existing business).
For entrepreneurs in Canada, setting aside a down payment of 20% – 30% of the purchase price – or the amount needed to launch your business is average.
When choosing a lender and loan terms, remember that interest rates aren’t everything. Low-interest loans look great on paper, but they come with rigid repayment terms that can be tough to meet when your business is just getting started.
How Long Do Business Loan Approvals Take?
Getting a loan for your small business isn’t something you can do in a day – it takes time. Aside from doing your own research and getting your financials in order, your lender will take their time when going through your application and verifying all the information you’ve provided.
Financing a business is complex, even more so than getting a mortgage for a house. There’s a lot more involved than simply saving up your extra pennies and taking out a simple loan. Not to mention, banks are being even more selective these days in light of economic trends like inflation and changing interest rates.
Because of this, your lender will be closely scrutinizing you and your business partners (if relevant) before deciding if they want to offer you the money needed for your venture. As you may expect, this can take time.
So, how long exactly? Again, it depends. Every deal is different. However, based on industry averages, you could expect an application and approval process of several weeks to a few months – at a minimum.
Want to know more about working with a business broker? Explore these related readings from our blog!
- Working With a Business Broker: The Basics
- Why You Should Sell Your Restaurant With a Business Broker
- What’s the Difference Between Residential and Commercial Real Estate Transactions?
What Will Lenders Look At?
No matter where you apply for your business loan, they’ll want to know about you and whether or not their money will be in good hands. Yes, being able to make a sizable down payment is a great start, but there’s a lot more to it.
Beyond just finances, your lender will also be interested in your specific business goals, your experience (in your target industry), your track record, and any specific ideas or plans that you’re set on. You’ll spend a fair amount of time speaking with them one-on-one as they assess your loan worthiness.
After this interview process, your lender will take a close look at your formal business plans. Businesses rarely succeed by chance – and banks know this. So, they’ll want to see a well-thought-out business plan to ensure they’re making a safe investment in you.
Looking to buy or sell a business? Regardless of your goals, we can help! Reach us at ryan@carverealestate.com or call 416-618-0054.
