The Canada Small Business Financing Program has been working to increase the availability of loans for small businesses for 50 years. Established by Industry Canada in 1961, the program was created to make it easier for small businesses to obtain financing from banks and institutions by sharing the risk with the lenders.
The focus of the program is to help new businesses get started and to support established firms wanting to make improvements to develop their business. The Canada Small Business Financing Program improves access to loans, which would otherwise not be available to small businesses, in order to stimulate economic growth.
Each year the program helps small businesses access 10,000 loans worth over $1 billion.
Who can apply for the Canada Small Business Program?
If you have a Canadian small business with a gross annual revenue of $5 million or less you will be eligible for this program.
Exceptions to the program include: non-profit organizations; charitable and religious organizations, and farming businesses that have access to a similar program run by Agriculture and Agri-Food Canada.
What Can the Loan be Used for?
The Canada Small Business Financing Program is for new and existing businesses alike. Financing from the program can only be used for specified purposes, including the financing of up to 90% of the cost of:
- Purchasing or improving land, real property or immovables;
- Purchasing leasehold improvements or improving leased property;
- Purchasing or improving new or used equipment.
Successful applicants can receive up to $500,000 for their business, of which no more than $350,000 can be allocated to leasehold improvements or improving new or existing equipment.
What is Excluded from the Loan?
- Improve a family dwelling for non-commercial purposes
- Purchase shares
- Finance working capital such as (finance inventory, accounts receivable, etc.)
- To give permits and licenses used in the operation of eligible assets
- Franchise fees
- Feasibility studies for small business; professional fees (e.g. legal, accounting and appraisal)
- Survey costs
- Building permits
- Vehicle for personal use
- Intangibles costs (i.e. research and development costs, prepaid expenses, good will, etc)
- Purchase real estate for resale
Who Provides the Financing?
Finance is provided by an approved list of financial institutions including Scotiabank, the Bank of Montreal, HSBC and the Industrial and Commercial Bank of China (Canada). For a full list of lenders visit the Industry Canada website.
How does Industry Canada Help in the Process?
Although Industry Canada does not contribute to the decision making process of the lenders, it provides a reassurance to the lending banks and unions 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 Interest Rates?
The interest rate of the loan will be determined by the financial institution providing the loan. Interest rates can be either fixed or variable.
If the interest rate is variable, it cannot be more than 3% above the financial institution's prime lending rate. If the interest rate is fixed, it cannot be more than 3% above the financial institution's residential mortgage rate.
What are the Fees?
Two percent of the total loan value must be paid by the business owner to the lender as a registration fee. This fee can be absorbed into the loan and paid through the loans scheduled payments.
What Other Terms are There?
Lenders are required to take security on the loan which can be in the form of the assets being financed. Lenders also have the option to take an additional unsecured personal guarantee, which cannot exceed 25% of the total amount loaned.
Full payment of the loan will generally coincide with the expected economic life of the asset being financed, up to a maximum of 10 years. Monthly payments on the loan will typically be scheduled however specific details will be dependent on the individual lender.
How to Apply
To apply for the Canada Small Business Financing Program contact one of the approved list of lenders provided by Industry Canada and discuss your business needs with one of their financial officers. The individual lender will review your business proposal and make a decision on your application. Once the decision has been made, the
Download Industry Canada’s information pamphlet or contact them at 1-866-959-1699 (toll-free) or [email protected] for more information on the program.