If you’re a small business owner in Canada, you may be familiar with the Canada Small Business Financing Program (CSBFP). Administered by financial institutions across the country, the CSBFP provides government-guaranteed financing to eligible small businesses in Canada. This program makes it easier for lenders to approve loans with the added security of a government guarantee.
In July 2022, the CSBFP underwent some significant changes that expanded the types of financing products available, introduced a new class of loans, and increased loan amounts and terms. In this article, we’ll go over these changes and what they mean for small business owners in Canada.
What are the changes to the CSBFP?
New Financing Classes Available Through Term Loans
The Canada Small Business Financing Program has recently introduced two new financing classes that small businesses can now access through term loans: intangible assets and working capital costs.
- Intangible assets are non-monetary assets without physical substance that can be sold, transferred, licensed, rented, or exchanged, including franchise fees, goodwill, and incorporation costs.
- Working capital costs are costs associated with funding the day-to-day operating expenses of a business, such as inventory, costs related to the creation of software and websites, and professional fees.
Previously, these types of costs were ineligible for financing through the program and had to be paid out-of-pocket or through other credit products. This new financing flexibility will give small businesses access to the financial resources they need to invest in their operations and grow their businesses.
Extended Loan Terms and Improved Financing Flexibility for Term Loans
In addition to the additional financing classes, the CSBFP also made changes to the terms and conditions of term loans to provide more flexibility for borrowers. The highlights of these changes include:
- Maximum loan term: Term loans can now be made for a maximum of 15 years. This applies to all term loans used to finance real property, leasehold improvements, equipment, intangible assets, and working capital costs.
- Financing period: The period during which eligible expenditures or commitments can be financed has been increased from 180 days to 365 days before the date the term loan is approved.
- Appraisal: For term loans requiring assessment, the appraisal must now be made 365 days before the loan is disbursed rather than 180 days before the loan is approved.
- Interest rate and fees: The maximum interest rate for term loans remains at prime +3%, or the single-family residential mortgage rate +3%. The 2% registration fee and 1.25% annual administration fee applied to the end-of-month loan balances will also remain in effect.
- Registration: The period for registering a term loan has been extended from three to six months from the date of the first loan disbursement.
- Security: Lenders must continue to take security in the assets financed for real property and equipment term loans. On the other hand, a general security agreement must be taken for leasehold improvements and working capital costs.
New Financing Product: Line of Credit for Working Capital Costs
Another significant change to the CSBFP is the introduction of a line of credit as a financing option. This line of credit can be used to cover the day-to-day operating expenses of a small business, such as inventory, rent, payroll, and professional fees. It is worth noting that the line of credit can be used to pay for expenses that have arisen or been invoiced in the past 365 days.
The terms and conditions of the line of credit include the following:
- Maximum term: The line of credit has a maximum term of 5 years, beginning on the day after the line of credit is opened by the lender.
- Renewal: Before the end of the 5-year term, the lender and borrower have the option to either re-register the line of credit for another 5 years, convert the line of credit amount into a term loan with a maximum 10-year coverage period, or enter into an agreement to repay the balance of the line of credit with a conventional loan.
- Interest rate and fees: The maximum interest rate for the line of credit is prime + 5%. Additionally, there is a 2% registration fee on the authorized amount and an annual administration fee of 1.25% on the daily outstanding balance or average daily balance for each month.
- Registration: The line of credit must be registered within six months of being opened by the lender.
- Security: The lender must take security in the assets of the small business for the authorized amount of the line of credit.
Maximum Loan Amount: Increase from $1 Million to $1.15 Million
Another change to the CSBFP is the increase in the maximum loan amount for borrowers from $1 million to $1.15 million. This includes:
- $1 million for term loans, of which a maximum of $500,000 can be used for equipment and leasehold improvement loans (up to $350,000) and a maximum of $150,000 can be used for intangible assets and working capital costs;
- $150,000 for lines of credit for working capital costs, in addition to the $150,000 that can be used for working capital costs through term loans.
Improved Loan Conditions
The changes to the CSBFP have also included improvements to loan conditions, significantly decreasing the administrative burden for borrowers and lenders. These changes include:
- Claim process and documents: For term loans, the requirement to provide documentation that substantiates the cost and proof of payment of the purchase has been reduced from 100% to 75% of the principal amount of the outstanding loan. For lines of credit, lenders are no longer required to substantiate the cost and proof of payment for expenditures on the line of credit. Instead, they must simply submit an attestation form signed by the borrower stating that the line of credit will be used for eligible expenses.
- In the event of default: The process for defaults on term loans and lines of credit has been streamlined, with lenders only needing to provide the borrower with a demand for repayment of the balance due on the date of default within a specified period.
How the Changes to the CSBFP Benefit Your Small Businesses
The changes to the CSBFP will provide small businesses in Canada with more options and flexibility when it comes to financing their operations and managing their cash flow. With the ability to take out both term loans and lines of credit, small businesses can better plan and budget for their financial needs. The expansion of financing classes through term loans, including intangible assets and working capital costs, gives small businesses access to resources they may not have previously had to invest in their operations and grow their businesses. In addition, the extended loan terms and improved financing flexibility of term loans offer small businesses more flexibility in terms of repayment and financing periods. Overall, these changes to the CSBFP can help small businesses like yours better finance their operations and achieve their operational goals.
Of course, securing financing is just one aspect of running a successful business. To ensure that your business is set up for success, it is crucial to have a solid business plan in place. A business plan outlines your business’s goals, strategies, and projected financial performance and is an essential tool for attracting investors and lenders.
If you’re in need of assistance with creating a comprehensive and professional business plan, BSBCON can help. Our team of expert business plan writers has a proven track record of helping businesses like yours secure the financing they need to reach the potential of their businesses.
Don’t let the opportunity to secure financing pass you by – contact our team today to learn more about how our services can help you succeed.
