What a lender can assess when there is no revenue history
When a business has no revenue history, a lender cannot judge repayment from the business, so it judges the substitutes: your personal credit history, your personal income and existing debts, any collateral, and how much of your own money is already at risk. Lending in Canada is licensed provincially, so which regulator supervises a given lender, and which rules it works under, depends on where the lender operates.
A lender building a file on a start-up will typically look at:
- Your personal credit reports. Canada has two national credit reporting bureaus, Equifax Canada and TransUnion Canada. Payment history, how long accounts have been open, how much of any revolving credit is in use, and recent inquiries are all read as evidence of how you handle obligations.
- Your personal income and existing debt payments. If the business cannot carry a payment yet, something else has to. As one reference point, federally regulated mortgage lenders generally work to a total debt service ratio ceiling of about 44%, which shows how lenders compare total debt payments against income.
- Collateral. Vehicles, equipment, inventory, receivables and home equity can all be pledged. At federally regulated lenders, a home equity line of credit is generally limited to 65% of appraised property value, with total secured lending against the same property usually capped at 80%.
- Equity you have already injected. Money you have already put in is treated as evidence of commitment, and it reduces the amount the lender is being asked to advance.
- Forward commitments. Signed contracts, purchase orders, deposits and letters of intent are evidence of demand that exists before revenue is recorded.
- Experience, licences and the plan. Industry experience, a required licence or certification, and a cash-flow forecast all help, although projections carry less weight than completed transactions because they are not yet facts.
None of this replaces revenue. It changes what is being considered, at what price, and how much security or personal support sits behind it.
Sources of start-up money that usually come before borrowed money
For most new businesses the first money in is not borrowed. The sequence below is the order most owners work through, because each step reduces what a lender has to be persuaded of.
- Your own savings and the sale of personal assets. This money has no repayment schedule, which matters most in the months when revenue is lowest.
- Income from employment or contract work. Personal bills covered from outside the business mean the business is not under immediate pressure to produce cash.
- Money from family or friends. It is still a financing arrangement. Writing down whether it is a gift, a loan or equity, and on what terms, prevents a later disagreement.
- Government programs and advisory services. The Government of Canada — business financing page is the starting point for federal programs, and it points to provincial and regional programs as well.
- Customer money before delivery. Deposits, pre-orders, retainers and subscriptions bring cash in before you have delivered anything, which is cheaper than borrowing an equivalent amount.
- Supplier and landlord terms. Trade credit and a fit-out contribution are forms of financing that do not appear as bank debt but do change cash flow.
- Personal credit products. Personal loans and personal lines of credit are described by the Financial Consumer Agency of Canada — personal loans. Using them for a business means personal debt is carrying business risk.
Business borrowing — new business loans, equipment financing or a business line of credit for new business — normally comes after some of these steps, because a file is stronger when the owner's own money is already in the business.
What a lender weighs, and what it stands in for
With no revenue history, each item on an application is doing a specific job.
| What the lender examines | What it stands in for when there is no revenue | What it affects |
|---|---|---|
| Personal credit reports from Equifax Canada and TransUnion Canada | Evidence of how you have handled repayment obligations | Whether the file moves forward, and on what terms |
| Personal income and existing debt payments | Capacity to carry a payment until the business can | How large a payment fits within the assessment |
| Collateral such as a vehicle, equipment or home equity | Recovery if the business does not succeed | Whether borrowing is secured, and how much is advanced |
| Cash and assets already committed by the owner | Commitment, and a buffer for early losses | How much the lender is asked to put in |
| Signed contracts, purchase orders, deposits | Demand that exists before revenue is recorded | Whether a blank revenue line can be looked past |
| Experience, licences, cash-flow forecast | How the business is expected to operate and repay | The structure of what is offered, if anything is |
Business line of credit for a new business
A business line of credit for a new business is a revolving facility: you draw up to a limit and interest is charged on what is drawn, while a term loan advances a set amount that is repaid on a schedule. A new business line of credit is usually the harder of the two to arrange, because a lender has to decide how much to make available before it has seen how the business behaves.
What decides that question is the same material as above: your personal credit, whatever secures the facility, any personal guarantee, the cash you have injected, and any contracts or receivables showing money coming in. A lender may begin with a limit it can review later. The lowest rates are only available to the most qualified applicants.
Secured borrowing, and the personal side of it
Where property is available, secured borrowing is often where a lender starts, because the security can be recovered if things go wrong. At federally regulated lenders, a home equity line of credit is generally limited to 65% of appraised property value, and total secured lending against the property is usually capped at 80%. A facility like that used for a business is still secured against your home, which means business risk reaches the place you live.
Mortgage lending also shows how debt service is tested. Federally regulated mortgage lenders generally work to a total debt service ratio ceiling of about 44%, and qualify an uninsured mortgage at the greater of the contract rate plus 2 percentage points and 5.25%, under OSFI Guideline B-20. Canadian fixed-rate mortgages are compounded semi-annually by law, so a mortgage rate is not directly comparable to a business rate that compounds on a different basis.
loanmoose.ca is not a lender and does not make credit decisions. It matches and compares; rates, limits and terms come from a lender, if a lender offers them at all.
Rules, limits and benchmarks that apply
- The Criminal Code criminal rate of interest is 35% per year (s. 347).
- Where a province operates a licensed payday lending regime, the federal Payday Lending Regulations (SOR/2024-114) cap the cost of borrowing at $14 per $100 advanced. Some provinces set a cap lower than $14 per $100, and the lower cap applies.
- Quebec does not license payday lending, which effectively prohibits the model there. A payday loan is generally up to $1,500 for a term of 62 days or less, and it is not a start-up financing tool.
- The Bank of Canada publishes the policy interest rate, the prime rate, conventional mortgage rates and Government of Canada benchmark bond yields. These are benchmarks, not offers, and no lender is obliged to lend at them.
- Consumer complaints about federally regulated financial institutions go to the Financial Consumer Agency of Canada; provinces license and supervise most other lenders.
- A consumer proposal stays on a credit report for 3 years after completion, or 6 years from filing, whichever comes first. A first bankruptcy stays on a credit report for 6 years after discharge. Only a licensed insolvency trustee can administer a consumer proposal or bankruptcy.
Checks to run before you apply
- Get your credit reports from both Equifax Canada and TransUnion Canada and review them for errors before a lender does.
- Add up the money you can commit without borrowing, and decide in advance how much of it you can afford to lose.
- List any asset that could secure a facility, and note how easily each could be valued and sold.
- Collect forward evidence: signed contracts, purchase orders, deposit receipts and letters of intent.
- Build a twelve-month cash-flow forecast that includes your own living costs, not just the business's costs.
- Review federal, provincial and regional programs, starting with the Government of Canada — business financing page.
- If you are considering personal credit instead, read the Financial Consumer Agency of Canada — personal loans material before you sign.
- Ask each lender in writing for the interest rate, how interest is compounded, every fee, whether a personal guarantee is required, and whether repaying early carries a cost.
- Confirm which regulator supervises the lender, and where a complaint would go if something goes wrong.
Because lending in Canada is licensed provincially, two lenders offering a similar-sounding product may sit under different regulators and different disclosure rules. What works for one business, or one owner's balance sheet, will not be right for another, so the sensible step before committing is to compare written terms side by side, and to take regulated professional advice before a decision that is significant for you.