As an Entrepreneur Ecosystem Strategist with ATB, Cliff Turner helps small business owners grow their businesses by using loans to tap into revenue boosting opportunities. 

“When considering a loan, [your] business opportunity needs to outweigh the debt,” he says. In other words, the money you’ll make by taking the loan will more than cover the loan debt and interest payments. 

When used at the right time for the right opportunity, a business loan has the potential to grow your company. However, Turner says to use loans effectively, you need to know the ideal circumstances for loans for your specific company, how to position your company to get the best rate and what to look for in a lender.

When is the right time to get a business loan?

“The right time to get a loan will be unique to each business,” says Turner. Some will require a loan in the startup phase to get things off the ground, others after they have tested their market and need to ramp up, still others when they are ready to expand into new markets, or offer expanded services or products. “In any case, the purpose of a loan should be to fuel growth that will in turn cover the cost of the loan and create more revenue for the business.”

Common scenarios when a loan makes sense include:

• Launching a new business—purchasing the necessary equipment to get started, for example.
• Landing a contract and needing to expand production capacity.
• Purchasing new equipment or machinery to make more or new products more efficiently.
• Expanding to another location or moving locations. “Upfront costs for moves or expansions can be significant,” Turner says. 

“Figure out what the true costs are with a lot of planning and research. Compare the different costs for equipment you might need to complete a job or all the costs of a new location,” Turner says. “Our business loan calculator can help you compare options to see what works best for your situation. Combine this with a revenue forecast (you can use our cash flow forecasting tool), your financial reports (balance sheet, income statement, and cashflow statement) to discover how a loan would affect your bottom line.”

“Be sure not to overlook costs that come along with whatever you are financing,” he says. For example, if a new piece of equipment is being added, it will demand more energy than what you’re currently using, there will be maintenance costs, possibly new insurance costs and more staff hours to run it—include these in your calculations.

How do I qualify for a business loan in Alberta?

A thorough business plan is necessary to qualify for a business loan in Alberta, says Turner. 

Your business plan should cover your product or service offering, your key management team, the history of your business, your growth goals, the financial position of your company and its financial projections for three to five years (if you’re a startup, Turners says they typically only look for two years). “A strong business plan is transparent, exploring strengths and opportunities as well as challenges and your plans to overcome them,” Turner says. “This shows the bank that you are realistic about your plans and expectations.”

Turner says that in addition to a business plan, you’ll need to provide the following information to qualify for a loan: 

• The company’s most recent financial statements.
• The business owner’s personal net worth and T1 general forms.
• Any documents related to the financing request. For example, for an equipment loan you’ll need to provide the purchase agreement or any details related to that specific purchase. For commercial property purchases, more documents are needed, including an appraisal of the property, an environmental report, and a structural and mechanical inspection if applicable.

What kind of credit score do I need to get a business loan?

A business owner’s personal credit score does play a role in business loans, says Turner. 

“This score reflects a shareholder’s or business owner’s repayment history on past and existing credit payments,” he says. “At most financial institutions, they’ll require a minimum score for new customers looking to get a business loan and sometimes a lower minimum score for existing customers.”

What is a good rate for a business loan?

“Rates are always a difficult question to answer when it comes to business loans,” says Turner. “The interest rate reflects the financial institution's assessment of the risk that the borrowed funds won’t be paid back.” 

This assessment is mostly based on three factors:

• The financial strength of the borrower. Lenders will want to review the most recent financial statements of the company to know its profitability. Why? To see whether the company is capable of paying the loan back. For new clients, the lender will want to understand what the projections are for the company and the basis of those projections.
• Credit worthiness of the company and its owners. Lenders will also consider the company and owners’ history of repaying previous loans. “If a company has existing liabilities, the bank will require that the company has enough cash flow to pay for their existing payments and the new payments of the loan request,” says Turner.
• Amount of collateral. Collateral can be used against a loan to get a better rate. Collateral is an asset you own that the lender will accept as security for a loan. Examples include buildings, equipment, company cars or invested assets like GICs. Assets that don’t depreciate—like real estate—are preferred to assets that do, like equipment and cars. 

What should I look for in a lender?

For business owners looking to get a loan, Turner recommends choosing a bank that desires to work with you as a partner, and is able and willing to adapt with you as your business grows and your banking needs change.

The pricing on a loan is not always the best factor to base your decision on. Turner recommends evaluating the terms of a loan, including early payout options and associated fees. Review any value-added services provided by the bank that can help you reach business goals at different stages of your business.

Can I do anything to improve the business loan rate?

If you’re looking to get a business loan in the future, Turner has three tips for you to improve your chances of getting a favourable interest rate: 

1. Take care of personal credit. Make your bill and credit payments on time, every time. “When a financial institution is assessing the risk of giving you a loan, you’ll likely be seen as more credit worthy and will get a better rate if you do this,” he says.
2. Think about collateral. Offering up some kind of collateral—like buildings, equipment or investment assets—can help lower your rate.
3. Boost profitability. Look for ways to drive more profitability in your business. If your business is financially strong, the lender will view your company as a lower risk to loan to. “Be sure to clearly document your finances and projections to make the case for this,” Turner encourages.