Small Business Loans in Canada (2026): CSBFP, BDC, Banks and Startup Financing

Which small business loan a Canadian business can get depends mostly on how long it has been operating, how much it needs and what the money is for. A business with an established revenue history can often borrow from a bank or credit union; a startup with no revenue history leans on programs that weigh the founder and the plan, such as the federal Canada Small Business Financing Program (CSBFP) and Futurpreneur. This page compares the options, explains the CSBFP limits, and covers startup financing and how sole proprietors qualify. It is part of the personal loans, lines of credit and business borrowing hub.

Small Business Loan Options Compared

Canada Small Business Financing Program (CSBFP)

The CSBFP is a federal program that makes it easier for small businesses to get loans by sharing the risk with lenders. Banks, caisses populaires and credit unions deliver it: you apply to your own financial institution, which makes the lending decision and then registers the loan with Innovation, Science and Economic Development Canada (ISED).

Who qualifies: small businesses or start-ups operating in Canada with gross annual revenues of $10 million or less. Farming businesses are not eligible (they have a separate program under the Canadian Agricultural Loans Act).

Loan limits:

• $1.15 million maximum per borrower in total
• Up to $1,000,000 in term loans, which can pay for real property, equipment, leasehold improvements, intangible assets and working capital
• Within that $1,000,000, no more than $500,000 for leasehold improvements and equipment, and within that $500,000, no more than $150,000 for intangible assets and working capital costs
• A separate line of credit of up to $150,000 for day-to-day working capital

Rates and fees:

• Floating-rate term loans: at most the lender’s prime rate + 3%
• Fixed-rate term loans: at most the lender’s single-family residential mortgage rate for the term + 3%
• Lines of credit: at most the lender’s prime rate + 5%
• A 2% registration fee, on the amount lent (term loans) or the amount authorized (lines of credit), which the borrower pays and can finance

Security: for real property and equipment, the lender takes security on the assets financed; for leasehold improvements, intangibles, working capital and lines of credit, it takes security on business assets. The lender can also take an unsecured personal guarantee. Eligible uses include commercial vehicles, restaurant or production equipment, computer equipment and software, and the costs of buying a franchise.

BDC (Business Development Bank of Canada)

BDC is a federal Crown corporation that serves Canadian entrepreneurs and complements the role played by private-sector financial institutions. It offers term loans, working capital loans, equipment and technology financing, and advisory services, and it describes its role as complementing other banks. Its pricing is set loan by loan.

Bank and Credit Union Business Loans

RBC, TD, BMO, Scotiabank, CIBC and the credit unions all lend to small businesses. They usually look for:

• the owner’s personal credit score and credit history
• a track record of operating
• positive cash flow and financial statements
• collateral for larger loans
• a business plan

Approval at a bank usually takes several weeks. Newer businesses or those with little revenue history often turn to the CSBFP (delivered by the same banks) or alternative lenders instead.

Online and Alternative Lenders

Online lenders fill the gap for businesses that need money quickly or don’t meet a bank’s criteria, at a higher cost. Merchant Growth, Driven (formerly Thinking Capital) and Journey Capital offer term loans, and Merchant Growth and Journey Capital also offer lines of credit, to established small businesses, usually approving on bank-account data and revenue.

Comparing the total cost of borrowing (all interest and fees over the term), not just the payment, shows the real price of any loan or advance. For a business owner with weak personal credit, business borrowing with weak personal credit covers revenue-based financing and how lenders weigh sales history against the owner’s score.

Financing a Startup (Under Two Years)

Banks lend mainly on demonstrated cash flow and business history, which a startup doesn’t have. That pushes most new businesses away from conventional bank term loans until they can show one to two years of revenue, and toward programs that judge the founder and the plan.

Futurpreneur charges interest at RBC’s prime rate + 3% on its portion, and BDC charges its floating base rate + 1.65% on its portion. Grants don’t have to be repaid but are competitive and tied to specific purposes; the small business grants guide covers them.

Without a revenue history, startup lenders weigh:

• the business plan, including realistic financial projections and how the money will be used
• the founder’s personal credit score and history, as a stand-in for business risk
• the founder’s own investment, since lenders see a founder who has put in their own money as a lower risk than one asking for 100% outside financing
• industry and market viability
• collateral, such as the equipment being bought, which secures a CSBFP equipment loan

Many startups combine sources: personal investment, a CSBFP-financed equipment purchase and a smaller working capital loan or line of credit.

Sole Proprietors and Incorporated Businesses

A sole proprietorship has no legal separation from its owner, so the owner’s personal finances carry more weight in a loan decision. The programs available are largely the same; what changes is the paperwork and how directly personal credit drives the answer.

Does incorporating help? Incorporating isn’t required for the CSBFP, which is open to sole proprietors, partnerships, cooperatives and corporations. It can help at larger amounts, where lenders prefer a business with its own financial statements and credit history separate from the owner’s. For the smaller amounts most sole proprietors borrow, the difference is usually small, and the CSBFP’s eligibility test (revenue of $10 million or less) is the same for both. The tax side of the choice is covered in business structures in Canada. A self-employed person borrowing for personal rather than business use applies for a personal loan for the self-employed, which is assessed on personal income.

How Lenders Evaluate a Small Business Loan

1. The owner’s personal credit score. It matters even for business loans, and especially for a business without its own credit history. Online lenders also set minimums; two list a score of 600 as a requirement.
2. Time in business. The CSBFP is open to start-ups; BDC’s start-up financing asks for at least 12 months in operation with revenue; some online lenders ask for six months or more.
3. Revenue and cash flow. Lenders check that revenue covers the payments, often with a debt service coverage ratio (cash flow divided by debt payments); the level that counts as healthy varies by lender, and BDC describes a ratio of 2 or higher as healthy.
4. The business plan. It matters most for startups and CSBFP applications.
5. Collateral. A CSBFP equipment or property loan is secured by the asset bought; banks may ask for more.

Documents to Prepare

• Business financial statements (the last two to three years, if available)
• A personal financial statement (assets and liabilities)
• A business plan with financial projections
• Recent business and personal tax returns; for a sole proprietor, two years of Notices of Assessment and Form T2125
• Business bank statements for the last 6 to 12 months
• Articles of incorporation or business registration
• Details of existing business debts
• How the money will be used, and quotes for any equipment
• Invoices or signed contracts, for businesses paid by project or retainer

Common Mistakes

Borrowing more than the purpose needs. Interest runs on every dollar borrowed.

Mismatching the loan and the purpose. A short-term, high-cost loan used for a long-term investment (or the reverse) strains cash flow.

Comparing payments instead of costs. Origination fees, administration fees and prepayment penalties change the total cost; even a one- or two-point rate difference on a $100,000 loan adds up to thousands over the term.

Signing a personal guarantee without reading it. Lenders can ask for one, which puts the owner’s personal assets behind the business debt.

Business lines of credit

A business line of credit solves a different problem from a term loan. Instead of borrowing a fixed amount for one purchase, the business gets standing access to money it can draw on when cash flow is tight, and pays interest only on what it uses. For businesses with seasonal swings, slow-paying clients or uneven expenses, a line arranged before it’s needed can cover the gaps. This guide is part of the personal loans, lines of credit and business borrowing hub; term loans and government-backed programs are covered in small business loans in Canada.

Business Line of Credit vs Term Loan

Rates and Limits by Lender Type

Bank and credit union lines usually cost the least for a business that qualifies, but they ask for the most documentation and history. Online lenders approve faster with less paperwork, at a real cost premium; a flat fee or factor rate should be converted to an annual rate before comparing it with a prime-based line. Under the federal Canada Small Business Financing Program, a bank or credit union can also offer a working capital line of credit of up to $150,000, at no more than the lender’s prime rate + 5% (CSBFP details).

How Lenders Decide

Lenders generally weigh:

• The owner’s personal credit score, especially for a business under two or three years old with little credit history of its own; owners with weak personal credit have other routes, covered in business borrowing with weak personal credit
• Time in business, with most banks preferring at least one or two years of operating history
• Revenue and cash flow, from business bank statements or financial statements
• Existing debt, since lenders assess the business’s capacity to service debt alongside the owner’s finances
• Industry, as some lenders are more cautious with seasonal businesses, restaurants and other sectors with high failure rates

Secured vs Unsecured Business Lines of Credit

A secured business line of credit is backed by collateral: business assets, accounts receivable, inventory or, in some cases, a personal guarantee backed by home equity. With a specific asset to fall back on, the lender can offer a lower rate and a larger limit, the same trade-off that applies to secured and unsecured loans generally.

An unsecured line doesn’t require pledging a specific asset but lenders can ask for a personal guarantee from the owner. Without collateral, lenders charge more and set smaller limits. A business owner comparing this with a personal line of credit can find personal rates on the line of credit rates page; keeping business borrowing separate from personal borrowing also keeps the business’s records clean.

Common Uses

• Covering payroll or rent in a slow month
• Bridging the gap between sending an invoice and getting paid
• Buying inventory ahead of a busy season
• Handling unexpected repairs without disrupting cash flow
• Standing by as backup working capital until it’s needed

Larger one-time purchases of machinery or vehicles are usually financed with a term loan or lease instead; equipment financing compares the two.

Equipment financing

Equipment financing pays for machinery, vehicles, technology and other business assets either with a loan, where the business owns the equipment from the start, or with a lease, where the lessor owns it and the business pays to use it. The choice affects the monthly cost, the cash needed upfront, what the business owns at the end and how the cost is deducted for tax. This guide is part of the personal loans, lines of credit and business borrowing hub.

Equipment Financing Options

CSBFP Equipment Loans

Under the federal Canada Small Business Financing Program, a bank or credit union can lend up to $500,000 for equipment and leasehold improvements combined, within the program’s $1 million term-loan limit, at no more than the lender’s prime rate + 3% (floating) plus a 2% registration fee; the lender takes security on the equipment financed. Who qualifies, the other limits and how to apply are covered in small business loans in Canada.

Buying vs Leasing

Worked Example: $50,000 of Equipment

The comparison changes with the lease’s real interest rate, the buyout price and the timing of the deductions, so the lease contract’s implicit rate is worth asking for.

How Equipment Is Deducted

Equipment the business buys isn’t deducted all at once: it is claimed through capital cost allowance by CCA class, and property acquired after 2024 that becomes available for use before 2034 gets a larger first-year claim under the reaccelerated investment incentive, enacted by the Budget 2025 Implementation Act, No. 1. The classes, their rates and the first-year rules are set out in small business tax deductions.

Interest on an equipment loan is a deductible business expense, and payments on a true lease are deducted as an expense as they are paid. A GST/HST registrant can generally claim input tax credits on the purchase price, or on each lease payment (GST/HST).

Equipment Commonly Financed

Farming businesses aren’t eligible for the CSBFP; they have a separate federal program under the Canadian Agricultural Loans Act.

Choosing Between a Loan and a Lease

A business owner with weak personal credit has fewer lenders to choose from; business borrowing with weak personal credit covers the options, and the equipment itself often serves as the security.

Application Checklist

The business bank accounts comparison covers where to hold the business’s money, and the business insurance guide covers insuring financed equipment, which lenders and lessors usually require.

Business loans with bad credit

Weak personal credit doesn’t end a small business’s financing options, but it changes which lenders are realistic. Banks, BDC and the lenders that deliver the CSBFP all weigh the owner’s personal credit heavily for small businesses, which pushes owners with bad credit toward alternative lenders that look at the business’s actual cash flow instead of, or alongside, the credit score. This guide is part of the personal loans, lines of credit and business borrowing hub; borrowing with bad credit for personal rather than business use is covered in bad credit loans in Canada.

Why Personal Credit Matters So Much

A small or new business often has little or no credit history of its own, so lenders use the owner’s personal credit score as their main risk signal. That holds even for many bank business loans and lines of credit, which usually require a personal guarantee from the owner. As the business builds a longer record of revenue and its own credit history, the weight on personal credit eases, but for most small businesses it stays the main factor.

Options by Credit Situation

The weaker the owner’s credit, the more the business’s own sales and cash flow history count. A business with strong, steady revenue can often still get reasonable financing when the owner’s personal credit is poor. The programs and lenders open to businesses with good credit are compared in small business loans in Canada.

Revenue-Based Financing

Revenue-based lenders (such as Merchant Growth) approve financing mainly on sales history and bank deposits rather than personal credit score. Repayment is usually a percentage of daily or weekly revenue rather than a fixed monthly payment, so payments shrink in slow periods. A merchant cash advance works the same way: a lump sum repaid from a share of future card sales, which is a different product from a credit card cash advance.

That flexibility has a cost. The effective rate on revenue-based financing and merchant cash advances is generally well above a bank loan or even a typical online term loan, so these products tend to work as a bridge rather than long-term financing.

What Improves the Odds of Approval

1. Three to six months of steady bank deposits. For an alternative lender, this is the strongest evidence a business with weak owner credit can show.
2. Lower existing debt. Paying down personal and business debt before applying, even partly, improves how any lender sees the application.
3. Collateral. Equipment, inventory or accounts receivable can secure a lower rate than an unsecured option, even with damaged personal credit; equipment financing uses the equipment itself as security.
4. Being upfront about credit. Some alternative lenders specialize in this segment and don’t decline automatically the way a bank would; hiding the issue only wastes applications.
5. Comparing total repayment cost, not just approval odds. Merchant cash advances and some revenue-based products carry very high effective rates, so the fastest yes isn’t always the cheapest. A business line of credit secured by receivables or inventory can cost less once it’s available.