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Small Businesses | 28 May, 2021

A Guide to the Canada Small Business Financing Program

Are you thinking about applying for a loan through the Canada Small Business Financing Program? This article provides all the information that you need and key steps on how to ensure your application is successful.

If you are starting a business, you might already be overwhelmed by the costs that are required to get everything up and running. The average cost of starting a business in Canada is between $50,000 and $150,000. Depending on your business plan you could struggle to convince a lender to take on this level of risk. Alternatively, you might be looking to expand your existing business and running into the same issues. If that’s the case, then the Canada Small Business Financing Program could be the right solution for you.

This is designed to ensure that small and medium-sized businesses in Canada can access the capital streams that they need without hitting the usual roadblocks.

What Is The CSBFP?

The CSBFP provides loans that are sponsored by the government. The loan can provide up to $10,000 to small businesses or $350,000 if the loan will be used for leasehold improvements and equipment purchases. Since 85% of the loan is guaranteed by the federal government, this is only a low level of risk to lenders.

The loan is delivered by financial institutions such as banks and they are fully responsible for approving the loan. As such, you need to make sure that you are putting forward the right business plan which we will discuss more further down.

A financial officer at a bank or credit union is responsible for reviewing your loan application and determining whether it moves forward. You need to make sure that you are gathering the right information that they will require to make this final decision for you.

 

What Are The Costs Of The Loan?

The interest rate that is paid on the loan will be determined by the financial institution that you choose to borrow from. CSBFL lenders may offer variable or fixed interest rates. However, the maximum chargeable variable interest rate is the prime lending rate of the individual lender plus 3%. The max fixed interest rate is the single-family residential mortgage rate that is available for the term of the loan plus 3%.

It’s also worth noting that you will need to pay a registration fee of 2% of the total amount that has been borrowed. This 2% must be paid to the chosen lender by the business owner, however it can also be financed by the loan.

This registration fee as well as a certain amount of interest is passed from the lender to the Canadian government to help ensure that the costs of this program are more manageable.

 

Are There Any Other Terms?

Lenders must take out security on the loan. This can be in the form of the assets which are financed. It’s also possible for lenders to take an additional personal guarantee that is unsecured. However, this cannot exceed 25% of the total loan.

Usually, the payment of the loan will be linked to the economic life of the asset which is financed. Traditionally, this will not extend to more than 10 years. In certain cases, it may be possible to arrange an amortization of 20 years. Leasehold improvements can have an amortization of up to 7 years while property loans may be up to 15 years.

Repayment of the loan will often occur in monthly payments that are on a set schedule. However, this again is dependent on the individual lender. As such, when you speak to different lenders, it is important to make sure that you query this as well, as the interest that will be placed on the loan and whether it is fixed or variable.

 

A Brief History

The Canada Small Business Financing Program was established by industry Canada in 1961. The purpose of the loan was to ensure that it was easier for small businesses to obtain the financing they needed from institutions and banks. This was achieved by sharing the risk with the lender. Without this program that has been running for fifty years, it would be impossible for some smaller companies to gain the financial support they need.

Today, the program provides small businesses with the support they need by ensuring that more than 10,000 loans can be approved, with total lending exceeding $1 billion. Over the past 10 years, 63,000 loans have been approved, amounting to a total of $9.5 billion in financing.

 

Have Questions? Looking To Get Started?

 

Who Is It For?

CSBFP loans are typically used by small businesses that need financial support to start their company in the first couple of years. Or, grow their business to new heights and ensure that they can reach greater levels of profitability.

Alternatively, established businesses may also use the loan. This will be necessary if the business is experiencing issues with cash flow, typically in the aftermath of a significant investment.

The CSBFP is primarily for businesses that need to purchase equipment or are keen to make leasehold improvements and renovations for their property. There is a separate yet similar option that exists for businesses within the farming industry.

However, the majority of small businesses and start-ups can apply for this loan, assuming that their gross annual revenue is $10M or less.

You can purchase a range of different types of equipment depending on your business from computers for your office to appliances for your kitchen in a restaurant. You can also use the loan to fund purchases that were eligible and completed within the last six months. You can also choose whether you purchase equipment that is brand new or second-hand with the loan.

To qualify for the loan you must operate out of Canada and the loan needs to be based on improving levels of profitability. Any assets that you purchase need to be used within your business model.

The loan can not be used to finance working capital, fee for franchising, marketing costs, or goodwill.

As such, charitable organizations, non-profit organizations, and religious organizations are all excluded from applying for this loan.

 

Increase Your Chances Of Success Securing A CSBFP Loan

Although the loan is backed by the federal government, the communication and application will be with your commercial lender. There are numerous commercial lenders available to choose from; however, your current financial institution could be the right starting point.

Do note that some banks do not have the same level of enthusiasm for the CSBFP. As such, you may need to explore other banks and different resources. It could be worth looking at CSBFL lenders that actively promote this possibility.

 

The Importance of a CSBFP Business Plan

To secure a loan, you need to present a business proposal directly to your preferred financial institution. The proposal will include a full business plan with all the key details that they do require.

This does include a business plan that explains exactly what you plan on purchasing with the funds from the loan, and how much these purchases will cost.

As well as this, you will need to show through your business plan how the loan is going to improve profitability levels in your company, ensuring that you will be able to repay the loan under the terms that were agreed.

It’s important to understand that the commercial bank is the sole organization responsible for deciding whether or not to approve the loan. The right business plan will increase the chances of approval dramatically. The money you will receive is sourced from the bank rather than the federal government.

You must ensure that you work with a CSBFP business plan writer who has a proven record of creating successful business plans. It is essential that your consultant understands the specific requirements for a Canada Small Business Financing Program business plan and that you are addressing all the relevant details. Your business plan should be as detailed as possible and answer any queries that a lender might have, demonstrating that your proposal is not high-risk.

Apply For Your CSBFP Loan Today

If you are interested in applying for this loan, make sure that you look at the approved list of lenders that is provided by Industry Canada. You should also use a loan calculator. This can be used to check the total cost of the assets in your business that you are planning to finance. You can also use a loan calculator to ascertain your likely interest charges as well as the monthly payment.

Make sure that you do work with a business plan writer to ensure that you have the best chance of approval before you move forward here. Any individual lender will review your business proposal including your business plan before making a final decision. Due to the low level of risk for the lender, many of the financing requests are approved. However, it’s still important that you do take all the right steps to prove that you do have a strong plan of action for your business.

 

Let's Get Started!