Finding the money you need to start and grow your business isn’t always easy. Fortunately, the Canada Small Business Financing Program (CSBFP) has been working to increase the availability of loans for small businesses for over 60 years. In this article, learn more about the CSBFP and if your business is eligible.
About the CSBFP
The CSBFP was created to make it easier for small businesses to obtain financing from banks and institutions by sharing the risk with the lenders. It aims to help new businesses get started and to support established firms that want to make improvements to develop their business. The CSBFP improves access to loans, which would otherwise be unavailable, in order to stimulate economic growth.
Over the past ten years, the program has offered more than 53,000 loans, worth over $10 billion.
Who Can Apply?
Canadian start-ups and existing for-profit, not-for-profit, and charitable small businesses with gross revenues of $10 million or less are eligible to apply for this program.
Note: Farming businesses aren’t eligible for this program. Agriculture and Agri-Food Canada’s Canadian Agricultural Loans Act program is designed to increase the availability of loans for farming.
What Can the Loan be Used for?
The CSBFP is for new and existing businesses, and financing can only be used for specified purposes.
Term loans can finance the cost of:
- Purchasing or improving real property used for commercial purposes
- Purchasing or improving new or used equipment
- Purchasing new or existing leasehold improvements (i.e. renovations to a leased property by a tenant)
- Intangible assets and working capital costs
For example, term loans can be used to finance commercial vehicles, hotel or restaurant equipment, computer equipment or software, and so on.
Lines of credit loans can be used to pay for working capital costs, like day-to-day business expenses.
What Can’t the Loan be Used for?
Here are some things that aren’t eligible for financing under the loan:
- Labour provided by the borrower
- The purchase of shares in another company
- Assets acquired by exchanges or bartering
- A pre-existing term loan or line of credit
- Improvements on a family dwelling for non-commercial purposes
- A vehicle for personal use
- Franchise fees
- Intangible costs (i.e. Research and development costs, goodwill, etc.)
Check with your financial institution if you have questions about what you can and cannot finance under the CSBFP.
What’s the Maximum Loan Amount I Can Access?
Successful applicants can receive up to a maximum of $1.15 million, including $1 million for term loans and $150,000 for lines of credit.
In terms of financing, it’s up to the borrower and lender to negotiate an appropriate amount of financing.
Who Provides Financing?
Financing is provided by private-sector lenders in every province across the country. Approved lenders include Scotiabank, the Bank of Montreal, HSBC, the Royal Bank of Canada, and more. For a full list of lenders visit the Industry Canada website.
How does Industry Canada Help in the Process?
Although Industry Canada doesn’t contribute to the decision-making process, it provides reassurance to lending banks that they will share the risk of the loan and assure cost recovery. This helps make otherwise unviable candidates viable for their lending programs.
Once a lender has approved a candidate for a loan they will notify Industry Canada of the agreement.
What Are the Associated Costs?
Registration Fee
The program’s registration fee is two percent of the total loan amount and can be financed as part of the loan.
Interest
For term loans, interest rates will be determined by your financial institution and may be floating or fixed.
- Floating – Maximum chargeable is the financial institution’s prime lending rate plus three percent.
- Fixed – Maximum chargeable is the financial institution’s single-family residential mortgage rate for the term of the loan plus three percent.
Lender Fees
Financial institutions may charge the same fees that they would for a conventional loan of the same amount. These fees are paid directly to the lender and cannot be financed.
What Other Terms Are There?
Lenders have to ensure that they have security and that it’s valid and enforceable at all times throughout the loan. Security is an asset pledged by the borrower as protection in case they default on the repayment, meaning they don’t pay some or all back.
When a CBSF loan is granted, the lender must take security on the assets of the business. This varies depending on what the loan is financing. A lender may also take measures to further secure the CSFB loan by taking an unsecured personal guarantee up to the original amount of the loan given.
The maximum term available for a CSFB term loan and line of credit varies. Check out the Canada Small Business Financing Program Guidelines for more information.
How to Apply
To apply for the CSBFP contact one of the approved list of lenders and discuss your business needs with one of their financial advisors. The individual lender will review your business proposal and make a decision based on your application.
Check out the Canada Small Business Financing Program page for more details.
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