Requirements for Business Line of Credit In Canada – One of the ways to fund a small business in Canada is by getting a line of credit loan. This type of loan works differently than most other types of small business loans that are available in Canada. Before applying, it’s essential to know the requirements and restrictions of these loans so you don’t waste your time trying to get one that you don’t qualify for or find yourself unable to pay back the money borrowed when the time comes because you don’t know the terms involved in repaying it.
What Is A Business Line of Credit
A business line of credit loan in Canada is also known as a LOC or tradeline. The LOC is accessed through an agreement between the business and the financial institution. The access to funds through a LOC allows you to request advances up to 85% without having to ask for the bank’s approval. Loans under this type can be granted with multiple extensions and in some cases, even a renewal rate that is lower than on other loans.
Eligibility Criteria For Business Line of Credit In Canada
Eligibility requirements can be difficult to navigate when applying for a business line of credit. Here is an overview of the requirements you need to know before applying:
1) To apply, you need to be 18 years or older and in good standing with a major Canadian financial institution (usually at least three months on file);
2) You must have a minimum business net worth of CDN$200,000;
3) The amount borrowed cannot exceed more than 85% of your current net worth;
4) At least 50% must be available as collateral from an asset that is free and clear, or liquidated;
5. Your gross annual income should be greater than CDN$50,000 per year for two consecutive years. If this requirement does not apply to you, then one of the following conditions must be met:
Financial Documents Required For Business Line of Credit
A completed application form
– Proof of working capital
– A copy of your articles or partnerships agreement or a Canadian bank account and your most recent statements – Contact information for three people who have firsthand knowledge that you are an established business person, with at least two years in business
Requirements for Business Line of Credit Loan in Canada:
-The applicant’s own personal net worth must be at least CDN$200,000 and can cover as much as 50% LTV (loan to value ratio) on the line of credit.
-Personal Guarantor Required: With a good credit rating, no guarantor is required but if not then there should be some type of collateral pledged against the loan such as property or stocks.
How To Apply For a Business Line of Credit In Canada
In order to apply for a business line of credit, you must be a legally registered business in Canada and have a valid bank account. You will also need three months’ worth of financial statements detailing your current assets and liabilities, as well as what your income has been over the past 12 months. The lender will then make an offer based on the company’s overall creditworthiness.
If you are unable to obtain a loan from an institutional lender, such as a bank or lending institution, you may want to look into peer-to-peer lending websites or alternative funding opportunities that offer direct funding to small businesses.
Final Thoughts on Business Lines of Credit In Canada
If you are not sure about the type of loan that would be best suited to your business needs, a business line of credit could be the answer. With this type of loan, there is a set limit that you can spend before the loan becomes due. You only repay what you have spent or drawn on your line. It can really help to maintain cash flow, even in tough times! The interest rates are variable and payments are scheduled based on how much is used. One caveat is that there may be a maximum amount allowed and even if more money is needed it will need to come from an outside source.
